Your uncle is pleased to hear you are taking macroeconomics; the whole financial crisis of 2008-2009...

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Economics

Your uncle is pleased to hear you are taking macroeconomics; thewhole financial crisis of 2008-2009 puzzled him. He was not happyabout â€œbailingâ€ 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? Arenâ€™t therepotential long-run problems with doing this?

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The macroeconomic impact of the subprime mortgage financialcrises in USA during the period 200710 led to long recession inUSA due to following reasons1 First there was a large decline in house prices after acollapse of house bubble leading to mortgage default foreclosuresand devaluation of housinglinked securities2 This led to decline in residential investment followed byreduction in household spending and business investment3 Decline in housing prices led to decline in housingconstruction and direct employment in the sector and See Answer

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