Answer to Question #117751 in Microeconomics for Juna Tamang

Question

Consider the financial crisis 2007-2009 in USA.
1. Explain the origin of this crisis. Provide a summary of this crisis, consisting of the reasons
of this crisis, and the breadth and extent of the crisis. Identify countries and markets
involved in the crisis (200 words). (1 mark)
Now, assume that the crisis has been continuing for 10 years. We call this period as a long
run period.
2. Explain the effect of this crisis on USA’s GDP in long-run? (200 words) (3 marks)
3. Explain the effect of this crisis on USA’s inflation rate in long-run? (200 words) (2 marks)

Answer 1

Question 1. The origin of this crisis, a summary of this crisis, reasons 

of this crisis, the extent of the crisis and countries and markets 

involved in the crisis

The USA Financial crisis began in 2007; it originated from the USA due to the collapse of the US housing finance market, which led to a severe contraction of liquidity. It endangered to knock down the international monetary system, causes by a commercial bank and severs significant investment, mortgage lenders, insurance companies, and savings and loan associations.

The crisis in a country can affect other countries' economies because it spreads frequently and does spread economic pain to other countries. The leading cause of financial turmoil is the tightening of the financial condition like interest rete spike commercial trade slowdown and economic confidence decline. 2007 crisis was a different banks' trust breakdown, which contributed to the financial crisis. The following are some of the cause of the financial crisis

Mortgage subprime crisis, it created its derivatives due to reregulation. Despite all efforts to cope with these financial crises, the crisis led to the Great economic Recession. Also, the united stated central bank federal reserve was the critical factor in the rise of the financial crisis due to a decrease in money supply in the US economy caused by the banking crisis.

Many countries were affected by the rise of crisis globally in European the country that profoundly affected that period was Mexico, Ireland Hungary, the Baltic states Ukraine, and Russian, while in South America, the following country was deeply affected by the crisis. The Asian markets were affected mainly by the next country Hong Kong, china, japan, and India.

Question 2. The effect of this crisis on USA's inflation rate in long-run

The economic growth of the united state recorded positively with a small increment during the 2007 financial crisis. The gross domestic product growth of the US economy was relatively stable While the growth of gross domestic product was relatively stable, which minimized the impacts of inflation effect on the economy of the united states. 

 In the year 2008, the global economic growth of the country was decisive in the united states of the American economy. However, the rate growth reduced down sharply slowly as the crisis was still affecting the economy.

The United state of America in 2008, the economic growth rate was positive, with a minimal impact of crisis effect on the economy. But the price of economic growth was significantly lower than in 2007 because it was the first year of crisis.

The figures for the GDP of 2009 are partial evidence of the financial crisis in the USA state economy.

In the year 2009 second half the united state of America began to recorded positive increment economic growth. In 2009 last quarter, the unified state was able to record the highest positive growth of the gross domestic product, which reduces the impact of the financial crisis in the economy.

Question 3. The effect of this crisis on USA's GDP in long-run

The financial crisis in the united states of America did not fall as much as expected in the economic period of 2007 and 2009. Still, since then, it has been lower persistently than the expectation of the economy given the strength of the economy and the attendant decline in the rate of unemployment below the standard economic rate of unemployment.

 The impact of inflation rate affected the economy of the united state of American in the following way

1.  The price of united stated of American Pound depreciates which led increases the value of imports in that country to help in feeding inflation

2.  There was a continuous increase in oil and petrol prices

3.  Increase the country in taxation for an extended period

4.  The spare capacity rise was minimal than expectations. It was zero in rate on interest; insolvencies were fewer than the other year. Also, the increase in unemployment was the main issue than the previous year

5.  The firms maintained proper cash flow by not cutting prices

6.  The Falling in manufactured goods commodity due to the global slump of the country

7.  The Pound valued was overrated to the Standard of gold. And reduce inflation due to the overvalued exchange rate