What were some of the consequences of the large current account deficits that the U.S. ran over a long period of time that culminated in the crisis that began in 2007?
What will be an ideal response?
The housing boom of the 2000s and the consumption spree and low savings rates of many Americans; housing finance became awash with funds, consumer credit was easy to get, and American lifestyles were indirectly financed by their access to savings from abroad. Because the current account deficits persisted for so long, they encouraged the gradual accumulation of problems that eventually became extremely severe. Financial market regulators were not prepared for the large inflows of foreign capital and did not recognition the danger of these inflows. Firms receiving funds felt pressure to make loans to increase earnings to make interest payments. Interest rates were depressed and encouraged borrowing. Easy access to home loans increased housing demand and home prices, which encouraged even more borrowing and building, adding to the housing bubble.
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When the government increases taxes to provide traditional public goods, such as national security, there tends to be
a. widespread benefits and costs b. widespread costs and concentrated benefits c. concentrated benefits and costs d. widespread benefits and concentrated costs e. widespread costs and either widespread or concentrated benefits
The spending multiplier tells us the:
A. amount by which GDP increases when spending increases by $1. B. amount by which GDP decreases when spending on capital goods increases by $1. C. fraction of each dollar that will decreases GDP of each dollar spent. D. amount by which spending increases when GDP increases by $1.