Essay About Interest Rates And Monetary Policy

The Stock Market Crash
Essay Preview: The Stock Market Crash
Report this essay
The Crisis The GFC was caused by the fall is U.S. house prices from 2007, which had doubled since 2000  It exposed serious housing finance weaknesses in the US, creating a crisis for the major banks  The stock markets fell everywhere as a result of the financial crisis, majority of the world relied on the stocks on the US citizens  Introduced monetary policy through interest rates and quantitative easing  Governments spent and borrowed a lot as a result of the crisis   Expansionary Monetary Policy – Governments try to expand spending by reducing interest rates, increase demand, unemployment goes down.  Restrictive Monetary Policy – Interest rates go up, spending goes down, people save more in order for the government to avoid inflation.  (Nominal interest rate – inflation rate = real interest rate)   How did Australia avert the worst effects of the crisis of 2008? The Mining Boom: Australia had an abundant t amount of gold and coal The Fiscal Policy: Substantial policy enacted by both the Rudd and Gillard government The monetary policy: cash rate was cut from 7% to 3% in 6 months in order to boost the level of spending and cash flow The United States  Output growth was strong until 2007 due to Aggressive monetary policy (Feds kept the interest rate very low – down to 1%)Aggressive fiscal policy – big “temporary” tax cuts by Bush Weakening US dollar exchange rate boosting exports  Crisis on the Wall Street spread to all financial capitals in the world, and then to the Main StreetUS growth was negative in 2008-2009 due to the financial crisis Unemployment doubled Inflation turned tod deflation in 2009  The Great Recession Weakness in the architecture and regulation of housing finance in the U.S. led to bankruptcy of major investment banks Interest rates lowered to almost 0Fed introduced  innovative ways to create more liquidity to encourage banks to restore normal lending Large fiscal stimulus plans Improved financial regulation  The European Union  France, Italy, Germany and Spain generate 60% of total output of the EUUnemployment rate = 6.6%Growth = 0.2% ISSUES IN EUROPE: