Your uncle is pleased to hear you are taking macroeconomics; thewhole financial crisis of 2008-2009 puzzled him. He was not happyabout “bailing†out the banks. He is pretty good with graphs, so donot be afraid to use the IS-MP framework to explain thefollowing:
How does the rapid decline of the housing market and thesubprime implosion affect the macroeconomy?
Why the monetary policy was not being effective to stimulate theeconomy?
And why, pray tell, would we bail out the banks? Aren’t therepotential long-run problems with doing this?
