Answer Number 6:
The most recent statement issued by FOMC was particularly to demonstrate the proper performance of the overall economy, and the statement was to develop the expectations of thepublic regarding the improving performance of the economy. According to the statement issued by the FOMC, the economy is performing well with unemployment level decreasing and the actual inflation is also lower than the forecasted increase of two percent. As aconsequence of lower inflation and high employment level, the household spending has increased in the period.
Answer Number 7:
Zero Bound Constraints:
Zero bound constraints is also known as Zero lower bound. It is a situation in which the Fed reduces the short-term interest rates to zero or nearly zero. State Banks brings the short-terminterest rates to zero to avoid the threat of deflation.
The goal of Fed is to achieve the goal of lower inflation and higher employment level. However, when the interest rate falls to zeroand there is a credit crunch in the economy,it means that Fed cannot reduce the interest rate level to boost the economy and persuade economic growth and the effectiveness of monetary policy is also reduced slowly as the interest rates go down to zero.
Answer Number 8:
Financial institutions need to sell their assets in the financial crises to meet the liabilities which they are obliged to settle. These sales are often classified as fire sales because the assets are disposed at substantially low prices than their market prices. In financial crises, the investors are reluctant to invest, and the bargaining power of financial institutions is relatively low which enforces financial institutions to sell the asset below market price.
In the times of financial crises, the investors do not invest in risky financial assets because the probability of losses is very high. Due to high risks investors are reluctant to purchase therisky asset at market price and often enforce the financial institutions to sell the property at a cost which incorporates the potential for buyer.
Answer Number 9:
Adverse Feedback Loop is a phrase in economics in which the control environment is weak and the organizations are self-regulating. If the agenciesregulatethemselves, it will result in several issues which make the trading conditions and economic environment worse.
Answer Number 10:
The Dodd-Frank Wall Street reform and consumer Protection Act was introduced after the 2008 financial crisis. The law aims to reduce the chances of financial crises, and if the crises occur, it then seeks to lessen the impact of such disasters. Dodd-Frank bill of 2010 restricts the investment of banks, reduces the speculative investment and also eliminatesproprietary trading. As per the bill, the banks are prohibited to be involved with hedge funds and private equity firms because of the high risk involved.
Also, the bill imposes some restrictions and regulations are increased for the trading of derivatives primarily credit default swap which is considered to be the main reason of the financial crises. The bill also proposed the oversight of work of credit rating agencies which are accusedof giving favorable investment ratings which contribute to the financial crises………………..
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