1. Watch Pres. Bush’s press conference after the financial crisis is found here: https://www.youtube.com/watch?v=T6bmEv2-rFA Focus on his explanation of the cause of the crisis. How does his explanation of the

1. Watch Pres. Bush’s press conference after the financial crisis is found here: https://www.youtube.com/watch?v=T6bmEv2-rFA Focus on his explanation of the cause of the crisis. How does his explanation of the cause of the crisis differ from that offered in the text? 2. is a moral hazard? How did the example of Long Term Capital lead to moral hazard in the US financial industry? 3. In this clip from The Big Short, MBS skeptic Steve Correl goes to credit rating agency Standard and Poors to see how they rate the securities based on the mortgage market. https://www.youtube.com/watch?v=9xZx1lf2tvs In preparation for Monday’s class, explain how the incentive structure in the credit rating industry resulted in widespread mistakes in the rating of mortgage risk. 4. Here’s a trip through Macro theory. is the Phillips Curve (put this in your own words)? Use Monday’s class to explain the following quote about the Phillips Curve: “As for the Phillips curve… most arguments today center around whether it’s dead or just gravely ill. Either way, the relationship between unemployment and inflation has become very difficult to spot.”—San Francisco Fed President Mary Daly 5. is the connection between interest rates and consumption? danger did prolonged low-interest rates create for US households in the 2000s? 6. is a Mortgage-Backed Security (try to put this in your own words)? Compared with a traditional mortgage, who bears the risk with an MBS? 7. is the difference between market, before tax, and after-tax measures of income? Which one would you expect to be the most equal and why? 8. One of the aspects of Neoliberalism in the US was that the Central Bank, The Federal Reserve, stopped using monetary policy to create full employment. Explain how that ed create low and stable inflation in the US during Neoliberalism. 9. explain how someone who believes in neoliberal economic policy could argue that unions (or a minimum wage, or welfare) could create unemployment when the demand for labour decreases? 10. Read https://www.theatlantic.com/business/archive/2016/09/welfare-queen-myth/501470/ Explain how payments to people on welfare were portrayed by Ronald Reagan in the late 1970s. How would reducing welfare rates improve the economy? 11. Enron was an infamous energy company in the US. Read this article https://www.theguardian.com/business/2005/feb/05/enron.usnews and use the Enron example to explain how deregulation ed profits in the Neoliberal SSA. (Enron is also the subject of the excellent film: Enron: The Smartest Guys in the Room). 12. Flexible exchange rates are supposed to prevent long-term trade deficits. Outline the process through which this is supposed to happen. Yet, the US has run persistent deficits starting in the early 1990s. is it about the US that has prevented this adjustment from happening? 13. In a low interest, high private debt, economy, the cost of increasing the interest rate is and the benefit is Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. increasing inflation; increased household debt decreasing inflation; decreased household debt decreased household debt; decreasing the payments on debt increasing payments on debt; reduced indebtedness 14. A teaser mortgage is dangerous because: Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. Borrowers only pay the interest at the beginning of the mortgage, which delays large principal payments. Banks use low interest mortgages to attract customers to their other banking services. They are high-interest mortgages offered to riskier, lower-income, borrowers Borrowers are locked into higher interest rates for a long time period. 15. A subprime mortgage is: Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. A mortgage that offers an interest rate below the prime rate A mortgage that is offered to high risk borrowers A mortgage that is insured/guaranteed by the federal government A mortgage that is less profitable for the lending institution 16. Which of the following statements best reflects the connection between wealth and consumption: Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. When wealth increases, and income decreases, consumption will increase. When wealth decreases, the marginal propensity to consume will increase. When wealth decreases, and income increases, consumption will decrease When wealth increases, the marginal propensity to consume will increase.

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