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

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?

Answer 1

1.The 2007 financial crisis is the breakdown of trust that occurred between banks the year before the 2008 financial crisis. It was causedby the subprime mortgage crisis, which itself was caused by the unregulated use of derivatives. ... Despite these efforts, thefinancial crisis still led to the Great Recession.

2.The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to the Great Recession of 2008–2012 and contributing to the European sovereign-debt crisis.