Question

1.20 In the fall of 2008, the U.S. stock market plummeted several times, with grave consequences for the world economy. A researcher might assess the economic effect this situation had by seeing how much money people saved in 2009. That amount could be compared to the amount people saved in more economically stable years. How might you operationalize the economic implica- tions at a national level?

Answer 1

There was a severe credit crisis, in 2008,  banks had  lost their capital, they became much more risk-averse and reluctant to lend, Corporations found it difficult to borrow, More than 5 million jobs were lost , the US lost $ 7.4 trillion in stock wealth from July 2008 to March 2009, the financial crisis cost the US $ 648 billion due to slower growth, Between June 2007 and November 2008, American people lost an estimated average of more than a quarter of their collective net worth , universities had to adjust to revenue shortfalls, there was a glut of homes on the market which depressed housing prices and slowed the growth of new home building, putting thousands of home builders and laborers out of business. With the decline of the GDP came the decline in innovation. With fewer resources to risk in creative destruction, the number of patent applications reduced. There was a collapse or takeover of several key firms such as Lehman Brothers, AIG, Merrill Lynch, and HBOS. In 2009, President Obama signed the American Recovery and Reinvestment Act. It had fiscal stimulus checks, tax cuts, and public works spending.