Problem
A. Explain how mortgage securitization makes it easier to borrow money to buy a house but harder to deal with when a house is sold for a loss.
B. Explain why securitization contributed to the problem of people buying homes using mortgages for which they did not know all the details (such as the negative-amortization mortgages referred to in the text).
C. Explain why the Federal Reserve felt it necessary to bail out AIG and what result it was attempting to avoid.
D. Explain the role of the credit default swap and why the attempt to make things safer for investors made things worse for everyone.
E. Explain each of the following in terms of whether they were discretionary fiscal policy, nondiscretionary fiscal policy, or monetary policy: TARP, the AIG bailout, the 2009 stimulus package, the rapid increase in unemployment compensation spending, the rapid reductions in state sales, and income tax revenues resulting from people having lower incomes.
F. How was "quantitative easing" different from what the Federal Reserve normally does?
G. Which lag described did the concept of "shovel-ready" intend to combat?
H. Why is it that some believe that slowing growth is a cause of a declining middle class and others believe the causality is reversed? Could it be both?
I. Why would a cut in the rate of growth from 2 percent to 1 percent have more than a 10 percent impact if it lasted 10 years?