Financial Crisis – Analyzing the Crisis in the NK AD-AS Mode…
Financial Crisis – Analyzing the Crisis in the NK AD-AS Model (26 Points) We could divide the 2008 financial crisis roughly into three stages: Stage 1: Decline in house prices (2006-2007). Fed responds by lowering interest rates Stage 2: Early stages of the financial crisis (2007-2008). Fed lowers rates more, but then ZLB binds Stage 3: Intensification of the financial crisis (2008-2009). Exacerbated by ZLB The first stage of the analysis starts with house prices dropping as follows:
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