Effectiveness of the Counter-Cyclical Policies
Effectiveness of the counter cyclical policy
Introduction
The focus of this study is on the extent to which the monetary and fiscal policy was used during the great recession. The great recession started in 2007 and ended in 2009. It was triggered by the financial crises that occurred in the mortgage and banking sector in the United States of America. The study also focuses on how the monetary and fiscal policy has been employed to date with an aim of moderating the business cycle. In particular the study focuses on the housing markets. Data sets on housing market has been presented in the excel sheets and thoroughly analyzed.
Economic and sociological forces
Reasons that drove the market equilibrium to unsustainable heights (bubbles)
A bubble refers to an economic cycle that is characterized with rapid shift in the asset prices which is then followed by a contraction. It is influenced by the social and economic factors affecting an asset and the market behavior. When there is an economic bubble the market prices and activity shifts significantly rendering the forces of demand and supply incapable of setting the market prices. The changes in the asset prices and activities are presented in the trends presented in the excel sheet
There are multiple factors that brought the housing market to unsustainable heights. A key cause of the bubble was the housing speculation. This led to subprime lending in the mortgage sector to individuals who could hardly afford the houses resulting in excessive supply of houses and low demand after the crises. Poor credit agencies ratings led to individuals without debt repayment capability gaining access to these houses. Excessive supply of housing thus ended up pushing the prices of housing down.
Shocks that brought the market back down
There are various factors that led to the cooling effect of the housing market in the US. For instance, the government economic stimulus led to an upturn of the US economy something that boosted the economy up. This resulted in increased household income and ability of people to repay mortgages and afford housing increasing demand in the housing market thus pushing prices up. Stringent policies by Federal Reserve Bank on lending, that emphasized on more due diligence also played an important role
in cooling down the housing bubble……………………………………………….
49518.3 Effectiveness of the Counter-Cyclical Policies
Answer preview for Effectiveness of the Counter-Cyclical Policies
Access the full answer containing 1525 words by clicking the below purchase button