Financial Crisis By The Collapse Of Theu.s Housing Market Essay

1001 Words Dec 6th, 2016 5 Pages
Introduction

2008 financial crisis originated by the collapse of the U.S housing market. Mortgage played an important role for banks, investors, insurance firms and homeowners. During that period, mortgage-backed securities and collateral debt obligation were highly demanded. The appearance of sub-prime mortgage furthered the housing prices and risks. Credit default swap was in vogue. As the number of default increased, the drop of housing price caused many banks, insurance companies bankruptcy due to incapability of repayment and operation. Eventually, expansionary fiscal policy, Troubled Assets Relief Program, different bailout programs were released for redemption. This crisis produced devastating effects on U.S. macro-economy in both short term and long term where will be explained by the following representative indicators with statistics to support my arguments.

a. Short-term impact on U.S. economy

1. Real GDP

Consequently, banks’ inability of lending and households’ wealth losses decreased investment and consumer spending. The aggregate demand during 2008-09 can be illustrated by the following expenditure method:

GDP = C + I + G + NX

(C = Consumer Spending, I = Investment Spending, G = Government Spending, NX = Export -Import) U.S president economic report 2016 indicates that all mentioned components have negative changes except government spending, therefore, national production decreased from…

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