Economics
vjayala
week4paper_team_a_2.docx
Business Cycles, Economic Shocks, and Restoring Equilibrium
Victor Ayala, Jeanette Eckley, Paul Fultz, Carlos Morales, Jeremy Pierce,
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Running head: BUSINESS CYCLES, ECONOMIC SHOCKS, AND RESTORING |
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BUSINESS CYCLES, ECONOMIC SHOCKS, AND RESTORING |
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Business Cycles, Economic Shocks, and Restoring Equilibrium
Our Topic:
Market 2: Actions by US governments at all levels and the Federal Reserve to deal with the collapse of tax revenues, increased unemployment and severe banking illiquidity associated with the financial crisis and recession.
In December 2007, the U.S. economy experienced the beginnings of a significant recession which was ultimately referred to as the Great Recession. According to the U.S. Bureau of Economic Research, this recession lasted for a little over 6 years (National Bureau of Economic Research, 2016) although it is popularly held that the US economy began recovering in 2009. The impact was quite devastating for American families and businesses and the economic effects rippled worldwide. The U.S. housing market collapsed, its financial system nearly collapsed and stock market reacted negatively.
A recession is defined as a significant contraction of the economy as measured by decreases in Gross Domestic Product (GDP; essentially production) and Gross Domestic Income (GDI; essential employment) that lasts longer than a few months (National Bureau of Economic Research, 2016). Typically, a recession is brought about by a negative shock(s) to the economic system (National Bureau of Economic Research, 2016). Herein we will discuss three specific shocks that led to this financial crisis and recession: (1) the collapse of tax revenues, (2) increased unemployment and (3) severe banking illiquidity. Additionally, we will review the effect of shocks on key aspects of enterpreneurialship (production, supply, financing, demand) as well as the stabilization measures available to and employed by the Federal Reserve.
(These “shocks” are listed in assignment but if anybody wants to argue other types of shocks should be included Im good with that… we can to intro anytime).
Stabilization in general ref. …cut interest rates (Christiano, Motto, & Rostagno, 2008).
Conclusion inspriation: “As a manager, it is important to understand how the business cycle affects supply and demand, prices, and how economic shocks will impact your company's markets, supply chain, and financing. The recent collapse of the housing market, the near failure of our financial system, the wild swings in commodity and stock prices, and the deep recession of 2007-2009 provide a virtual laboratory for the study of the economic shocks and stabilization measures taken to restore equilibrium.”
JE will finish intro and conclusion after we have more added so I can tailor them.
I’m going to try and hit this tomorrow night or Friday night so you all can build off of ours.
Analysis based on the team's assigned market in which you include the following:
Our team analysis focuses on the actions taken by all levels of the US government and the Federal Reserve in dealing with the collapse of tax revenues, increased unemployment and severe banking illiquidity associated with the financial crisis and recession.
Our first subject focuses on the economic and sociological forces that drove the market equilibrium to unsustainable heights and the shocks that brought the markets back down. Sub-prime mortgage loans were the one contributing factor of the 2007-2009 housing bubble and resulting recession. Investopedia defines a subprime mortgage as a type of mortgage that is normally issued by a lending institution to borrowers with low credit ratings. As a result of the borrower's lower credit rating, a conventional mortgage is not offered because the lender views the borrower as having a larger-than-average risk of defaulting on the loan. Lending institutions often charge interest on subprime mortgages at a rate that is higher than a conventional mortgage in order to compensate themselves for carrying more risk.
In the period leading up to the housing crash, Americans with credit scores below 600 were offered subprime mortgages. Many of these loans defaulted as they should have never been issued in the first place. The U.S. government pressed lending agencies into offering these type of loans to people with no assets, jobs or income. They also required no down payment to acquire the loans. 80% of subprime burrowers were offered teaser rates that shot up shortly after acquiring the property. Once the housing market’s bubble bust and prices dropped, leaving property owners upside down, the financially inept stopped paying and let their homes go into foreclosure. All of this only compounded the problem. Greed and corruption at the highest levels of the government and big banks left many taxpayers penny less as mortgage backed securities crashed. Government agencies like the Securities and Exchange Commission did little to nothing to prevent the effects of the housing market economic swing. In fact, lending agencies are now doing the same thing with automobile lending. After the U.S. government assumed the student loan program college prices have shot up 700%. The problem with the government and bureocratic agencies are that they have become too big, have unelected officials in charge and are unregulated by the judicial department. Many in American hope that an Article 5 convention of the States will allow amendments to the Constitution that will reign in the Federal government and its agencies, give power back to the states and the American taxpayer.
The rest is open for the rest of you. First come first served. Let me know your poison.
Discuss specific changes in supply and demand.
Examine prior government policies and legislation that exacerbated the impact of the shocks.
Evaluate the actions of the federal government and the Federal Reserve to restore equilibrium. How effective were these counter-cyclical policies?
The team evaluated the tools used by the Federal Reserve and their effect on the economy.
Please provide 300 words or so. That will put us over 1500 with 5 people. More than ample for requirement. Also proof read your work. Provide citations and your own references in APA format.
Save the file with whatever number revision we’re at. For example, the first one with be Week4Paper_Team_A1 and so on.
Please don’t wait til the last minute on Sunday to do your part. That will give Jeanette or myself time to scub whole document.
Thanks!
Christiano, L., Motto, R., & Rostagno, M. (2008). Shocks, structures or monetary policies? The Euro Area and US after 2001. Journal of Economic Dynamics & Control, 32(1), 2476-2506. Retrieved from http:///www.sciencedirect.com.contentproxy.phoenix.edu/science/article/pii/S0165188907002011
Investopedia. (2016). What is a ‘Subprime Mortgage.’ Retrieved from http://www.investopedia.com/terms/s/subprime_mortgage.asp#ixzz4LHiMUI9v
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2015). Economics: Principles, problems, and policies. Boston, MA: McGraw-Hill/Irwin
National Bureau of Economic Research. (2016, Seotember 24). Business Cycle Dating Committee, National Bureau of Economic Research. Retrieved from http://www.nber.org/cycles/dec2008.html
