Business Cycles, Economic Shocks, And Restoring Equilibrium ✓ Solved
Business Cycles, Economic Shocks, and Restoring Equilibrium Grading Guide
The Week 4 assignment provides the learner the opportunity to relate real world experiences to the economic theories of demand and supply, equilibrium, business cycles, economic shocks, and how markets adjust to new equilibria after encountering major shocks.
The team analyzed the economic and sociological forces that drove their assigned market’s equilibrium to unsustainable heights and the shocks that brought the markets back down. The team explained what could be done to moderate the effects of these economic swings.
The team discussed specific changes in supply and demand. The team examined prior government policies and legislation that exacerbated the impact of the shocks. The team evaluated the actions of the federal government and the Federal Reserve to restore equilibrium. The team discussed the effectiveness of the counter cyclical policies. The team evaluated the tools used by the Federal Reserve and their effect on the economy.
The team cited a minimum of three peer reviewed sources. The assignment is 1,400 words in length.
The paper—including tables and graphs, headings, title page, and reference page—is consistent with APA formatting guidelines and meets course-level requirements. The paper includes properly cited intellectual property using APA style in-text citations and a reference page. The paper includes paragraph and sentence transitions that are logical and maintain flow throughout the paper.
The paper includes sentences that are complete, clear, and concise. The paper follows proper rules of grammar and usage including spelling and punctuation.
Sample Paper For Above instruction
Business Cycles, Economic Shocks, and Restoring Equilibrium Grading Guide
Economic fluctuations, known as business cycles, are an intrinsic component of market economies. These cycles consist of periods of economic expansion followed by contractions, often influenced by various shocks and mediated by government policies. This paper examines the dynamics driving market equilibrium to unsustainable levels, the shocks that disrupt this equilibrium, and the subsequent policy responses aimed at restoring stability, with a specific focus on recent market examples.
The particular market analyzed in this context is the housing market, which has historically exhibited significant fluctuations driven by demand and supply forces, credit policies, and macroeconomic changes. During the housing bubble of the early 2000s, economic and sociological factors—such as speculative investment, risky lending practices, and exuberant consumer behavior—pushed housing prices to unsustainable heights (Shiller, 2008). The surge in demand was fueled by lax credit standards and low interest rates, leading to an overheated market where supply could not keep pace with demand.
The collapse of the housing bubble in 2007-2008 was precipitated by the burst of speculative bubbles and the tightening of credit conditions. These shocks dramatically reduced demand and caused a sharp decline in housing prices, leading to widespread foreclosures and financial instability. The shocks exemplify how macroeconomic forces—such as the collapse of mortgage-backed securities markets—can push markets away from equilibrium, creating significant economic downturns (Mian & Sufi, 2014).
Government policies and legislation played a dual role in exacerbating and mitigating these shocks. Prior to the crash, deregulation of lending standards and the promotion of risky financial products contributed to the bubble's formation (Gorton, 2010). In response to the crisis, the Federal Reserve and the federal government implemented various countercyclical policies. The Federal Reserve lowered interest rates to near-zero levels and engaged in large-scale asset purchases to inject liquidity into the economy (Bernanke, 2013). Fiscal stimulus, including programs to assist homeowners and banks, aimed to stabilize the economy.
The effectiveness of these policies is subject to debate. While they prevented a total economic collapse, concerns remain about long-term impacts such as increased public debt and moral hazard. The Federal Reserve’s tools, including open market operations and interest rate adjustments, directly influence liquidity and borrowing costs, thereby impacting demand and supply dynamics (Joyce et al., 2012). These measures helped restore market confidence and reestablish a new equilibrium, although economic recovery has been gradual.
In conclusion, analyzing the housing market crisis illustrates how economic and sociological forces can drive markets to unsustainable extremes. Specific policy interventions by the Federal Reserve and government agencies were crucial in restoring market stability. Nonetheless, ongoing debates about the adequacy and consequences of such policies highlight the delicate balance policymakers must maintain in managing economic fluctuations.
References
- Bernanke, B. S. (2013). The Federal Reserve and the financial crisis. Princeton University Press.
- Gorton, G. (2010). Slapped in the face by the invisible hand: Banking and the panic of 2007. Journal of Economic Perspectives, 24(1), 3-30.
- Joyce, M., Lasaosa, A., Stevens, I., & Tong, M. (2012). The impact of quantitative easing on bank lending in the UK. International Journal of Central Banking, 8(2), 1-37.
- Mian, A., & Sufi, A. (2014). House of debt: How mortgage debt sets the course of macroeconomic fluctuations. University of Chicago Press.
- Shiller, R. J. (2008). The subprime epidemic. Building Societies Section, Federal Reserve Bank of San Francisco Economic Letter, 2008(50), 1-4.