Premium Essay

Usa Housing Bubble Burst

In: Business and Management

Submitted By anaktk
Words 12008
Pages 49
Contents
1. Introduction to Economics 1 What is Economics? 2 Studying of Choice in a World of Scarcity 4 The Cost-Benefit Principles 6 Absolute Advantage vs. Comparative Advantage 9
2. Law of Demand and Supply 13 Introduction to Demand and Supply 14 The Demand Curve 15 The Supply Curve 18 Market Equilibrium 21 Shift in Demand 25 Shift in Supply 26
3. Elasticity of Demand and Supply 29 Price Elasticity of Demand 30 Types of Elasticity of Demand 31 Determinants of Price Elasticity of Demand 34 Price Elasticity of Supply 38 Types of Elasticity of Supply 39 Determinants of Price Elasticity of Supply 41
4. International Trade 44 Introduction to International Trade 45 International Trade Restrictions 48 Arguments in Favour of Restricting Trade 53 Non-economic Arguments for Restricting Trade 56 Problems with Trade Protection 58
5. Market Structures 62 Introduction to Market Structure 63 Perfect Competition 65 Monopoly 68 Monopolistic Competition 72
6. Macroeconomics – GDP, Unemployment, Money and Central Bank 77 Introduction to Macroeconomics 78 GDP 81 Unemployment 84 Inflation 89

[pic]

|Principles of Economics |

|BM2 |
A WORD OF WELCOME

| |
|As a distinct discipline, economics has been studied for a few hundred years, yet civilisation have confronted the economic problem|
|of scarce resource but unlimited wants for many years. Economics is renewed every day by fresh evidence that reshapes and

Similar Documents

Premium Essay

Asian Economics Comment Bubble House

...____________________________________________________________________________ REACTION PAPER Asian Economics Comment Presented to: Prof, Jima G.DeLeon, MBA Professor, School of Graduate Studies Central Philippine University In Partial Fulfilment of the Course Requirement in MBA 612 Financial Systems Presented by: Mehrdad Alavi MBA Thesis Option September 13, 2013 I. PRELINMINARY 1- The title of paper is Asian Economics Comment, The anatomy of bubbles, part 1. It is written at August 27 2009 by Dr, Feredric Neumman, whom is senior Asian Economist. The issuer of report is The Hongkong and Shunghai Banking Corporation Limited. Additional information for connecting to the author is +85228224556. FEREDERICINEUMANN@HSBC.COM.HK For more information, the reader can view HSBC Global Research at: www.research.hsbc.com 2- It talks about The Bubble in the financial market specifically in the financial housing market in the Asia and what was happening in the USA at 2008 in the same field. II. ANALYSIS AND REACTION 1- The author tried to anatomy of a bubble in the asset market which was happening at 2008 and before. The first part is discussed about what conditions required for that and the part two and three are belong to what is need to sustain the run. He had paid particularly attention to psychology and what behavioural insights now which could teach us. 2- Analyze the Elements of Style: This is a mix of Shakespearean literature and Economic article. In the first read it is difficult...

Words: 2241 - Pages: 9

Premium Essay

C.H.I.N.A.: 'Cheap House Is Not Allowed'

...‘Cheap House Is Not Allowed’ Will China’s real estate bubble burst? Since the onset of the global financial crisis in 2007, China has faced some critical problems linked with the excess of liquidity in its internal market, due to the stimulus plan launched by the Government to soften the effects of the crisis. As a result China is now fighting against a high rate of inflation (especially food prices) and a high cost of property. While the inflation issue has been partially solved in the first term of this year, the fear for the real-estate market trend is still alive. This essay aims to critically analyse the real estate market in China, which is also strictly linked with the health of this country’s economy, by examining this issue from two different perspectives: from the point of view of those scholars who believe that the Chinese bubble will burst and from the point of view of those who believe that the Chinese market is still safe. First of all the essay will give the historical and economic background of the price rises in the Chinese real estate market, from the birth of this important economic sector to the global financial crisis. Secondly, in the core part, this paper will explain the main theory regarding the possibility of the real estate bubble burst and the counter argument. To better understand the actual situation in China there will be also a short comparison with the burst of the American bubble in 2007. In the conclusive paragraph some predictions...

Words: 2726 - Pages: 11

Premium Essay

Subprime Mortgage Term Outline

...The following is an outline of the final paper, which is focusing on subprime mortgages and the housing market bubble. The paper will also analyze Fannie Mae and Freddie Mac and how they are linked to the subprime mortgage crisis, including potential solutions to the crisis. References have been added to each section to show which references are being used in which section. References will be added as needed. 1) Abstract a. 120 word overview of paper 2) Introduction a. Introduction to the topic of subprime mortgages and the housing market bubble. b. Timeline of the crisis and housing market bubble burst 3) Discussion Content a. Definitions and background information on the following topics: i. Mortgages ii. Housing Market iii. Subprime Mortgages 1. Demyanyk, Y., & Van Hemert, O. (2011). Understanding the Subprime Mortgage Crisis. Review of Financial Studies, 24(6), 1848-1880. 2. Karikari, J., Voicu, I., & Fang, I. (2011). FHA vs. Subprime Mortgage Originations: Is FHA the Answer to Subprime Lending?. Journal of Real Estate Finance and Economics, 43(4), 441-458. doi.10.1007/s11146-009-9218-7. iv. Housing Market Bubble Burst b. Overview and causes of the subprime mortgage crisis i. Fixed mortgage versus floating 1. Demyanyk, Y., & Van Hemert, O. (2011). Understanding the Subprime Mortgage Crisis. Review of Financial Studies, 24(6), 1848-1880. ii. High risk mortgage loans and lending/borrowing practices 1. Peterson, C.L. (2009). Fannie Mae, Freddie...

Words: 970 - Pages: 4

Free Essay

Aftershock

...Financial Meltdown Kevin Ung Economics 309, Fall 2010, Section 2 Professor N. Pulchritudoff December 9, 2010 In 2006, with home values high and credit flowing, authors David Wiedemer, Robert Wiedemer, and Cindy Spitzer accurately predicted the popping of the housing bubble, the collapse of the private debt bubble, the fall of the stock market bubble, the decline of consumer spending, and the widespread pain all of this was about to inflict on the rest of our economy. How did they get it so right while others got it so wrong? The authors saw a fundamental underlying pattern that others were—and, unfortunately, are still—missing. It may seem like the worst has come and gone, but it hasn't, say the authors in this new book. Things are not going back to how they were before. In Aftershock, the authors offer the definitive look at what is still to come—and what investors must do to protect themselves. This is not merely a down market cycle, the authors explain, nor is it a typical recession. It is a multi-bubble economy that is being hit by a "Bubblequake"—and the coming Aftershock will be far more dangerous. Aftershock details the next bubbles about to burst, including the Dollar Bubble and the Government Debt Bubble, while there's still time to protect your assets and position yourself to survive and thrive in this dangerous, yet potentially profitable new environment. They offer specific advice on how to profit and, more importantly, how not to lose money during the Aftershock...

Words: 1915 - Pages: 8

Premium Essay

Monies Monies Monies

...he causes of global financial crisis 1、Boom and burst in the housing market Low interest rates and large inflows of foreign funds created easy credit conditions. Subprime lending contribute to increase the housing demand.This fueled rising house prices.This housing bubble resulted in quite a few homeowners refinancing their homes at lower interest rates. This led to a building boom. Easy credit encouraged borrowers to obtain ARM. If borrowers could not make the payments ,they would try to refinance. Refinancing became more difficult, when house prices began to decline in USA. Borrowers found themselves unable to afford higher monthly payments ,then default. This places downward pressure on housing prices. 2、Speculation Speculation in residential real estate has been a contributing factor. Media widely reported condominiums being purchased while under construction, then being sold for a profit without the seller ever having lived in them. Speculative bubbles are fueled by "contagious optimism, seemingly impervious to facts, that often takes hold when prices are rising." Speculative borrowing has been cited as a contributing factor to the subprime mortgage crisis. 3 、High-risk mortgage loans and lending /borrowing practices Lenders began to offer more loans to higher-risk borrowers. The risk premium required by lenders to offer a subprime loan declined. Lenders have offered increasingly risky loan options. Mortgage brokers, while profiting from the home loan boom...

Words: 292 - Pages: 2

Premium Essay

Comment on the Relative Performance of the Uk, France, Germany and the Usa Since 1997

...Comment on the relative performance of the UK, France, Germany and the USA since 1997. Over the last 10 years the economic performance of the European countries and the US has varied a lot, due to the external shocks (terrorist attacks) and economic policies. While France and Germany do not have control over their monetary policy, the UK and the US do. Therefore the rest of this essay will analyse the difference in the economic performance of those countries over the last 10 year and provide some explanations for the difference that occurred. Graph 1. Relative GDP Performance Source: Euro State, 2007 From Graph 1, it can be seen that the UK has the most stable growth over the last 10 years, while Germany had the highest variation in its GDP performance. All of the countries saw a sharp decline in their GDP growth after the 9th September 2001, with the USA worst affected. However, such a sharp decline has also allowed the US to reshape its GDP the most by 2004. In comparison, Germany’s sharp decline in 2001 has led to a further GDP decline in 2002 and in 2003 the country saw negative economic growth. Over the last 10 years the US saw the highest overall growth in its GDP (28.9%), closely followed by the UK (28.5%) and France (22.8%). Germany struggled with only a 15.5% increase. Graph 2. Relative GDP performance of Germany and France against EU15 Source: Euro State, 2007 Graph 2 shows the performance of France and Germany relative...

Words: 2029 - Pages: 9

Free Essay

Comm101

...Welcome to Comm101 Principles of Responsible Commerce Dr Frank Neri Senior Lecturer School of Economics. What is socially irresponsible commerce? • Perhaps the Global Financial Crisis is the latest large scale manifestation of some s.i.c. • What caused the GFC? • This question does not have a simple answer. • But roughly speaking, the GFC began when a large housing price bubble in the USA burst. • Asset prices tumbled, and then so did the financial position of some very large banks and other corporations. • The global links of these corporations meant that these collapses had knock on effects in many other countries. • The response of many remaining banks: severely tighten lending. This led to economic slowdown, increasing unemployment, and hence the term GFC. Do these events involve socially irresponsible behaviour? • My view is that, to some extent, YES. • Why? • Because not all ‘players’ have equal access to, or equal understanding of, relevant information. • In economics we call this problem ‘asymmetric information’. • Asymmetric information can promote socially irresponsible behaviour, and hence individual and social harm. • The existence of asymmetric information is as old as commerce itself. For example, what does the following data refer to? 1 Semper Augustus Prices paid for tulip bulbs in 17th century Holland. • Flowers appear in May/June. • Bulbs were bought/sold at flowering (initially) by enthusiasts, later by the general...

Words: 801 - Pages: 4

Premium Essay

Global Economic Crisis

...the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown.” It has been maintained that huge economy inequalities coupled with low rate of profit in the US economy contributed to an increased capital flow to the financial sector and the increasing provision of credit to US workers whose real incomes had declined. Under auspices of financial innovations, debt was sold in complex new financial products to investors. Cheap and apparently riskless lending drove the rising leverage of investments. ‘Securitization’ helped to spread the risks to global financial markets and deficient government regulation facilitated these developments. A huge asset bubble developed in the US housing sector and burst as a result of high interest rate. Consequently, the world witnessed massive waves of defaults, institutional insolvency and a severe credit crunch. Introduction The global financial crisis led to the collapse of large financial institution, bailout of banks...

Words: 4003 - Pages: 17

Free Essay

Deregulation

...Codi Feuerzeig  Economics 104  Professor Robert Pollin  TA: Evelyn Kwakye  May 7, 2015     Deregulation       During the 1970s and 1980s the United States government went through a period of  deregulation.   Deregulation is a reduction of government involvement and control within an  industry.  Did this deregulation lead to the 2008 financial crisis?  This is a hot button topic that is  highly debated and causes a great deal of controversy.  The financial crisis of 2008, known as the  Great Recession, impacted the entire country and practically every individual citizen.  Many  politicians, such as Speaker of the House Nancy Pelosi, look for an easy blame or a scapegoat,  for example, the deregulation by the Bush Administration.  Pelosi has been quoted saying ​ "​ the  Bush Administration's eight long years of failed deregulation policies have resulted in our  nation's largest bailout ever, leaving the American taxpayers on the hook potentially for billions  of dollars" (Gattuso).​   The issue with that statement is that the economic deregulation she speaks  of did not take place during the Bush Administration, but many years prior and the laws of that  time are not controversial in today’s economic situation.  Rather more recent regulatory laws are  to blame for the financial crisis of 2008.      Why did we Regulate in the First Place?    The Great Depression is unopposed when it comes to economic downfalls in the United  States.  The financial h...

Words: 1874 - Pages: 8

Premium Essay

Economic Crisis of 2008

...economic crisis. It has affected the stock markets to the extent of stopping operations. In the US it is an issue which has been used as a campaign tool for presidential candidates to request for votes during their campaigns. Due to the crisis many US citizens have felt its impact and even lost their jobs. The crisis began with the United States housing market and gradually resulted into liquidity crisis (Steil, 2009). It is in this regard that this paper looks into the causes of the economic crisis of 2008 and its resulting recession. Causes of the 2008 crisis and its resulting recession Actually, the United States experienced many serious problems that included frozen money markets, plummeting dollar, banks on the threshold of bankruptcy, declining stock market, high levels of public debt and the impending threat of recession. According to some economists, the economic crisis was mainly affected by the world imbalances, perceptions of interest rates, risks and the regulations of the financial system. The following are the main causes of the economic crisis of 2008: Housing Crash The United States housing market is one of the main determinants of the rates of economic growth and consumer spending. There were different factors that made house prices to increase very faster than the consumer income, and therefore it resulted into overvalued assets. In references to Taylor, an economic specialist, he observed that the United States house prices were increasing...

Words: 1317 - Pages: 6

Free Essay

Global Recession

... Globalization and liberalization have contributed a lot in making the entire world a close knit economic unit. In an interconnected global economy recession and economic turbulence in one part of the world has the potential to disrupt the economies of other countries in a major way. The economic slowdown in US economy in 2008 caused by the burst of housing bubble engulfed the entire world in its grip. This research paper aims to give a detailed account of US Recession-2008 and its impact on Indian Economy. The financial crisis has not only affected United States of America, but also European Union, U.K and Asia. The Indian Economy too has felt the impact of the crisis to some extent. Though it is difficult to quantify the impact of the crisis on India, it is felt that certain sectors of the economy would be affected by the spill over effects of the financial crisis. INTRODUCTION The current global financial crisis is rooted in the subprime crisis which surfaced over a year ago in the United States of America. During the boom years, mortgage brokers attracted by the big commissions, encouraged buyers with poor credit to accept housing mortgages with little or no down payment and without credit checks. A combination of low interest rates and large inflow of foreign funds during the booming years helped the banks to create easy credit conditions for many years. Banks lent money on...

Words: 1280 - Pages: 6

Premium Essay

Homelessness in America

...Homelessness in America Tonight, across America, as many as 3.5 million people will not have a safe place to go to sleep. The homeless will be sleeping out in the cold, on a park bench or in the gutter. The lucky ones may be sleeping in a shelter tonight. These so called shelters are sometimes even more dangerous because they are frequently over-crowded and understaffed. But the real question is, in the land of opportunity, where the typical family has more televisions than family members and an average of two cars, why are there so many citizens on the street, struggling to survive from day to day? How are so many people, fellow human beings, sleeping on sidewalks, begging for spare change, and digging through garbage cans just to find food to eat? While the general impression is that the homeless are primarily alcoholics and drug abusers, more than half the homeless are families with children. The vast majority of these have been thrust into homelessness by a life altering event or series of events that were unexpected and unplanned for. There are many reasons these unfortunate individuals are seen living on the streets of our cities. Homelessness is caused by tragic life occurrences like the loss of loved ones, job loss, domestic violence, and divorce. Other impairments such as depression, untreated mental illness, post-traumatic stress disorder, and physical disabilities are also responsible for a large portion of the homeless. Many factors push people into living on...

Words: 1012 - Pages: 5

Premium Essay

Finance

...have been affected seriously. So do the global financial markets. This essay is to discuss the reasons and impacts of the crisis as well as demonstrate the government responses. Furthermore, some lessons from the recession will be delivered at the end of the essay. It is very important to make clear of the crisis and integrate the financial theories with practice. II. Discussion The probable reason of the current financial crisis is recognised as the sub-prime mortgage segment of the USA for which were the results of long times of exceptionally loose monetary policy of some developed economies during the early period of last ten years (Mohan, 2009). After the internet bubble broken in the US more than ten years ago, most of the developed economies especially the US extremely eased the monetary policy. Only one percent of the Policy Rate had been announced in the summer of 2003 in the US (Mohan, 2009). This policy lasted for a long period and consequently stimulated the housing bubble of the America in the last a few years of 21st Century since it furthered investments and consumptions. The strong demands surpassed the output of the United States and there was an increase of the current account deficits of this country (McKibbin et al, 2009). The mild monetary policy and the extremely low interest rates stimulated the overconsumptions and to relax the standard of lending. As a result,...

Words: 2240 - Pages: 9

Premium Essay

The Economic Crisis of U.S in 2008

...vanished, with retirement accounts and life savings swept away. Businesses, large and small, have felt the sting of a deep recession. There is much anger about what has transpired, and justifiably so. Many people who abided by all the rules now find themselves out of work and uncertain about their future prospects.” When reading this information, you may think it may be the status of a certain poor country. The particularly serious numbers show that country is experiencing many problems. I will tell you a secret that you can not have more surprise. The above information is situation of the country that has a most powerful economy all over the world. That is United State of America. The year 2008 marked the economic crisis which caused the USA severe damages. Many of the US financial institutions have suffered heavy losses due to the effect of this crisis. In addition, the crisis is increasingly spreading to the economies of some countries in Europe and in Japan... As a result, some powerful banks in these countries are also suffering from the impact of the crisis. The consequences of the crisis are not only observed in the dimensions of business operation and the economic growth rate and employment rate in the US, but also taken into consideration on the global impact on the shift of international investment capital flow in particular and the world’s economic growth in general. Therefore, it is really necessary to find out what creates this crisis in order to help other countries...

Words: 2799 - Pages: 12

Premium Essay

Subprime Mortgage

...SUBPRIME MORTGAGE CRISIS The U.S. subprime mortgage crisis was a set of events and conditions that led to the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages. What is a subprime mortgage? A subprime mortgage is a type of loan granted to individuals with poor credit histories, who, as a result of their deficient credit ratings, would not be able to qualify for conventional mortgages. Because subprime borrowers present a higher risk for lenders, subprime mortgages charge interest rates above the prime lending rate.  There are several different kinds of subprime mortgage structures available. The most common is the adjustable rate mortgage (ARM), which initially charges a fixed interest rate, and then converts to a floating rate based on an index, plus a margin. The better known types of ARMs include 3/27 and 2/28 ARMs. What lead to the US subprime mortgage crisis? ARMs are somewhat misleading to subprime borrowers in that the borrowers initially pay a lower interest rate. When their mortgages reset to the higher, variable rate, mortgage payments increase significantly. This is one of the factors that lead to the sharp increase in the number of subprime mortgage foreclosures in August of 2006, and the subprime mortgage meltdown that ensued. Many lenders were more liberal in granting these loans from 2004...

Words: 3201 - Pages: 13