going into this recent recession there was a belief that the modern economy had exhi 602768

Although the recession began in December of 2007, the reaction of the economy to both monetary and fiscal policies has been very modest compared to the promises of policy makers of the impact of the stimulus.

a. Discuss your thoughts on the inside lag.

b. Discuss your thoughts on the outside lag.

c. Going into this recent recession there was a belief that the modern economy had exhibited remarkable stability, capsulated in the concept of the Great Moderation. What do you think went wrong?

d. Using the models of aggregate supply and demand, how might the economy have reacted to:

• Increased consumer concern on house prices.
• Decrease in credit supplied as risk perceptions rose.
• A change in the financial market”s assessments of liquidity and marketability in housing-related instruments.

e. How might the other policy changes have altered the framework for financial markets, employment, and housing?