Assume the country is in a budget deficit and carrying a very large debt. Discuss the dangers of a high debt to GDP ratio and a growing budget deficit. Would this change any policy changes you discussed in Part 1?
Part B
Deliverable Length: 1,500-2,000 words
The financial crisis of 2008 has caused macroeconomists to rethink monetary and fiscal policies. Economists, financial experts, and government policy makers are victims of what former Fed chairman Alan Greenspan called a "once in a century credit tsunami"-in other words, nobody saw it coming.
Because you are now the expert in macroeconomics, your friends keep asking you your thoughts on what caused the financial crisis and whether the United States is going in the right or wrong direction with its current policies.
Focus specifically on the following:
- Monetary policy
- What monetary policies do you think caused the crisis?
- What were the effects of the policies implemented in reaction to the crisis?
- Do you think the solutions worked in the short term? In the long term?
- Fiscal policies
- What fiscal policies do you think caused the crisis?
- What were the effects of the fiscal policies implemented in reaction to the crisis?
- Do you think the solutions worked in the short term? In the long term?
Make sure you include the following concepts in your analysis:
- Interest rates
- GSAs
- The financial services industries (CDOs, CMOs, the stock market, credit flows, money markets, etc.)
- Tax rebates
- Aggregate demand
- Stimulus
- TARP
- Government debt and deficit
- Inflation
- Unemployment
- GDP
- Globalization
- Foreign investment
In your opinion, did government intervention help or harm the economy before and after the panic of 2008? Would you have done anything differently?