International Monetary and Financial environment

1.      Explain the causes of the global financial and economic crises that started in the U.S. in 2007.

Ans. Abstract: 

Crises are the worst things that badly affect the economy of country at global level. Much type of crisis faced by U.S. in 2007.financial and economic crisis will affect the GDP of global. The financial crisis will damage the progress of industries and due to this economic crisis going to appear at global level.

Body:

 Here are some causes that show the reasons behind financial and economic crisis; in febrauary, the price of property going to fell down and sales of homes reached to its peak position. The federal reserve chairman also warned that a great recession will be appear in 2007 that goes the GDP negative due to deficit in the budget of US. stock market going to rebound in 2007 and investors determine the future value of market with the current scenario. Financial services industry effected due to housing slump. Due to housing slump, federal reserve try to financial support to home owners but that was not enough. Due to recession the order of durable goods going to increase. Federal governor warns that the crisis will not over in 2007 due to their extreme effects. Super funds were created in November to recover the losses. At the end of the federal government announced the term auction facility to all the banks to recover the subprime mortgage. (AMADEO, 2019)

2.      What effects did it have on the global economy?

Ans.due to financial and economic crisis the global economy faces too much losses and downsizing. Economist try to resolve the crisis in the short-term span and banks are recapitalization and deleveraging the economy and with this they try to again built their trust on markets. The restrictive financial period become more protected and their loans and funding opportunities to recover the losses. lending and financial markets going to be freeze and that inversely effect the employment and spending output. That move to strong recession of economy. Government has to bear extra budgetary costs for rescue plans of economy. Fiscal adjustment also becomes very much complicated by currencies and public debts. The overall growth of economy will be affected due to poor efficiency of currency and at international market will bring down the business methodologies of different sectors. Financial crisis will badly affect the business dealings between different countries because the value of currency goes down that give loss of businessmen at international level. (oecdobserver.org, 2019)

3.      How did the global economy recover?

Ans. The crisis effects the economy at very bad side. They damage the reputation of many businesses and industrial sector going down, it moves the employment rate at low level and with it the production sector also going down. The value of currency also going to down. But when this phase passed away then government take many sorts of measurements to resolve the effects of crisis. First of all it bear the cost of recovery plans that  consider as additional burden on the budget of government and government has no reserves then it will borrow from some other country. In this regard government policies are established n such a way that projects of log term are going to be arranged that bind the countries into business agreements and profit goes to lender and the employment rate going to increase and with this the economy moves toward better condition banking sector also play important role in recovery of crisis. Banking sector minimize its interest rates and provide better opportunities for lending so many business sectors take or borrow loans from the banks to improve the poor condition of business. Currency value moist be improved by enhancing foreign investment and export and import should also increased that bring money in the country and overcome the borrowing of the country. But the effects of crisis not easily removed and many years will take to overcome the bad effects of crisis. Financial and economic crisis also give warning by analyzing the sectors especially reserve department of the country that give signs of future but precautionary measurements must be taken by government to resolve these matters . (theguardian.com, 2019)

4.      What kind of fiscal and monetary policies were implemented?

Ans. After the financial and economic crisis, the monetary policy makers are moves towards the ease of quantitative and fiscal policy makers will reduce the rate of taxes and increase the spending the government. The federal reserve is responsible for the monetary policies with in the country. That bring changes in the federal funds rate and supply f money. And according to theory the changes in the funds rate of federal will positively affect the interest rate of other markets. That positively affect the investment and saving decisions in different markets. Monetary policy is expansionary during the economic slowdown the money supply also increase due to low interest rate on long term assets and purchase of financial assets also going high.  The lower funds rate of federal provide more benefit to organizations to appoint more employees and due to this the rate of consumer going to high.

White house and congress has responsibility to prepare fiscal policies by show some better changes in the taxes and government spending. Fiscal policy is also expansionary during the economic slowdown. Government has to reduce taxes to increase the total spending and increase expenditures and enhance the production of firms and also increase the employment rate. The government budget deficit will improve the fiscal budgets and deep recession. The fiscal and monetary policies are very much problematic when financial and economic crisis because the high rates will damage the opportunities of organizations and they have no budget to bear these extra or additional expenses but these policies are very much important for the betterment and development of economy so these policies must be alter according to current situation of economy that provide better solution in poor economic conditions. (stlouisfed.org, 2011)

5.      What are the challenges that remain for the global economy?

Ans. Conclusion:

 Global economy has top face such type of crisis at any time when their policies are consider as burden for all the industrial sectors or businesses. Policies must be supportive according to current scenario of the business situations. With this the federal reserve and remaining government sectors has to be very much concern with the economic condition that belong to productivity of people and businesses. The consumer rate must be high because it will cause an increase in the production sector and the in advance economies the slow labour productivity growth also damage the economic situation or condition of the country or worldwide globally. The overall effect of policies may be change due to low rate of business or poor employment rate and then this will go to low consumption rate and due to this the economy goes down and face financial and economic crisis. Policies at all level must be prepared according to business situations and facilities will be provided by different lending sectors to enhance the business opportunities. (saltenyte, 2018)

Reference:

AMADEO, K. (2019, feb 04). 2007 Financial Crisis Explanation, Causes, and Timeline. Retrieved from https://www.thebalance.com/2007-financial-crisis-overview-3306138

oecdobserver.org. (2019). Financial crisis and the economy. Retrieved from http://oecdobserver.org/news/archivestory.php/aid/2754/Financial_crisis_and_the_economy.html

saltenyte, D. s. (2018, 5 9). Global Economy 10 Years after the Financial Crisis. Retrieved from https://blog.euromonitor.com/global-economy-10-years-after-financial-crisis/

stlouisfed.org. (2011, march). Fiscal and Monetary Policy in Times of Crisis. Retrieved from https://files.stlouisfed.org/files/htdocs/pageone-economics/uploads/newsletter/2011/201103.pdf

theguardian.com. (2019). World economy at risk of another financial crash, says IMF. Retrieved from https://www.theguardian.com/business/2018/oct/03/world-economy-at-risk-of-another-financial-crash-says-imf