Macroeconomics Individual Project on the 2007 US Economic Crisis

Individual project for
TECO602
Macroeconomics

Contents
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....3
2. Explain the effect of this crisis on USA’s GDP in long-run?..................................................................3
3. Explain the effect of this crisis on USA’s inflation rate in long-run?.....................................................4
4. Explain the effect of this crisis on USA’s labour market in long-run?...................................................4
5. Explain the effect of this crisis on the levels of Americans’ consumption in long-run?.......................5
6. Explain the effect of this crisis on the levels of USA’s investment in long-run?...................................5
7. Explain the effect of this crisis on USA government’s Budget in long-run?.........................................6
8. Assume that you are a policy maker in USA’s government and central bank; how you can recover
the crisis by changing macroeconomic variables?...................................................................................7
9. During the crisis, How USA can recover its output gap if it faces an expansionary gap?.....................9
10. During the crisis, How USA can recover its output gap if it faces a contractionary gap?...................9
REFERENCES..............................................................................................................................................11

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
The economic crisis in the United States started in 2007 as a result of the decline of the US
home financing industry, which resulted in a significant capacity compression. It was on the
verge of collapsing the worldwide monetary system in terms of a business bank's actions, which
included substantial investments, lending institutions, health insurers, and credit and savings
organizations. Since economic hardship travels regularly and does extend to other nations, a
country's crises can influence the economy of other nations. The hardening of financial
conditions, such as rising interest rates, market transaction slowdowns, and a drop in gain
traction, is the primary determinant of financial upheaval. The confidence collapse in various
institutions resulted in economic crisis in 2007. Several of the causes of the financial crisis are as
follows:
Owning to rule, the mortgage credit crunch gave birth to futures. Notwithstanding all
attempts to address these financial issues, the Global Economic Downturn resulted. Furthermore,
due to a drop in monetary base in the US cost - effective approach by the financial meltdown, the
reserve bank of the United States was a significant role in the onset of the global financial. Many
nations were afflicted by the worldwide development of crises, including Mexico, Ireland,
Hungary, the Baltic states, Ukraine, and Russia in Europe, and Brazil in South America. The
following countries, Hong Kong, China, Japan, and India, had a major impact on Asian region.
2. Explain the effect of this crisis on USA’s GDP in long-run?
Even during financial crisis in 2007, the United States' job expansion was favorable, with a
modest increase. The US country's economic output remained generally steady. Although the
increase of the gross domestic product was largely steady, the inflationary effects on the US
industry were limited.
In the United States of America's business in 2008, the nation's worldwide economic
expansion was important. Nevertheless, as the industry continued to be affected by the recession,
the rate of increase slowed dramatically. The United States of America's annual growth rate in
2008 was favorable, with little influence from the financial meltdown.