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  1. Questions


    1. What are some of the elements that lead to the financial crisis of 2008 – 2009? Responses should include at least one current quality reference, and be sure to include the full source citation author/date/publication/title).
    2. What “backs” the money supply in the United States?  What determines the value (domestic purchasing power) of money?  How does the purchasing power of money relate to the price level?  Who in the United States is responsible for maintaining the money’s purchasing power?
    3. What is our most important current economic problem?  Responses should include at least one current quality reference, and be sure to include the full source citation (author/date/publication/title)




Subject Economics Pages 5 Style APA



Question 1

The causes of the 2008-2009 economic crises include supreme mortgages gone terrible that were packaged into risky securities gone dreadful compounded by negligent regulatory oversight, a credit crunch such as reduced lending by financial organizations, and lack of consumer buoyancy. According to Goda (2017), the financial crisis began unfolding in 2006 and 2007, when significant numbers of homeowners started to falling behind their monthly mortgage payments.  Several subprime mortgages with artificially low preliminary payments had been made to individuals who could not afford them (Tatlıyer, 2017). A number of these credits included features that rapidly increased payment significantly to a level where individual could not afford to pay the higher costs that were necessitated to keep their homes.

Goda (2017) indicates that refinancing these credits/loans/mortgages was not an alternative, given that borrowers could not afford it and local real estate values had began declining thus, reducing the distressed homeowner’s equity, home value minus mortgage balance, which frequently became a negative figure. By the end of 2008, approximately 17% of homeowners had mortgage that exceeded their home’s value (Tatlıyer, 2017). Moreover, these mortgages were packaged together by the quasi-administration agencies including Fannie Mae, Freddie Mac and the Wall Street investment banks. Goda (2017) indicates that this procedure of packaging mortgage, described as securitization was effective and been done for years. However, things went astray when Wall Street organizations packaged prime and subprime mortgages together in an investment described as Credit Default Swaps (CDS), which were advertized as being “low risk due to the approach that the fundamental mortgages were accumulated (Tatlıyer, 2017). Generally, they main causes for 2008 -2009 economic crisis include supreme mortgages gone bad, toxic loans on the balance sheets and companies selling fewer products and services, which reduced sales and income tax revenue and increasing costs of unemployment.

Question 2

According to Murau (2017), there is no tangible patronage to the money supply in U.S. Paper currency, which has no fundamental value, has worth only given that individuals are enthusiastic to acknowledge it in trade for services and goods, including their services as staff. Moreover, individuals are willing to acknowledge paper currency since they are aware that everyone is also enthusiastic to use paper currency. If the monetary authorities were providing new banknotes at a rate far in surplus of obtainable output, the tolerability of the paper currency would decrease. Min (2017) indicates that individuals would start worrying regarding whether the banknote would be worth much after they attained them. In these modern times, checks are considered as part of the money supply and not lawful tender however, individuals acknowledge them enthusiastically from people believed to be honest and reliable.

 The purchasing authority of money is inversely linked to the price level. The Board of Governors of the Federal Reserve System (FED) is accountable for managing the U.S’s money supply so that currency maintains its purchasing influence (Min, 2017). The members of the Board of Governors from the FED are often chosen by the President of the United States and confirmed by the Senate. Generally, the money supply in the United States is fundamentally backed by the government’s ability to maintain the value currency reasonably steady (Min, 2017). The United State central banking system, the Federal Reserve, is considered as the most authoritative economic organization in the U.S., with obligations including setting interest rates, overseeing the money supply, and regulating economic markets.


Question 3

The current economic concern is the issue of scarcity and how best to produce and distribute the scare resources. Scarcity signifies that there is a finite supply of goods and other resources. In these modern days, consumers/households have limited income and are forced to decide how to spend their finite revenue (Kahl, 2018). . For instance, with a yearly salary of $20,000, a household may necessitate spending $10,000 annually on rent, council tax, and utility bills. Moreover, householders are also faced with decision of how much to work. Banerjee, Niehaus and Suri (2019) indicates that working overtime during weekends gives workers a chance to make extra income spend, but reduced leisure time.

The scarcity obliges governments to develop and implement different strategies that are essential in ensuring that there is adequate supply of resources to enhance economic productivity. According to Kahl (2018), currently, the government has finite resources and its spending authority is restricted by the sum of tax they can accumulate. The administration is expected to decide how they accumulate tax as well as choose whom they spend the money on. For instance, the administration may desire to cut benefits to those on low-revenue to enhance incentives to work. However, cutting benefits will augment inequality and comparative poverty (Banerjee, et al., 2019). Generally, the current biggest economic concern is the scarcity or limited resources.


Banerjee, A., Niehaus, P., & Suri, T. (2019). Universal basic income in the developing world. Annual Review of Economics. https://www.annualreviews.org/doi/full/10.1146/annurev-economics-080218-030229

Goda, T. (2017). A comparative review of the role of income inequality in economic crisis theories and its contribution to the financial crisis of 2007-2009. Revista Finanzas y Política Económica9(1), 151-174. http://www.scielo.org.co/scielo.php?script=sci_arttext&pid=S2248-60462017000100151

Kahl, C. H. (2018). States, scarcity, and civil strife in the developing world. Princeton University Press. https://www.degruyter.com/document/doi/10.1515/9780691188379/html

Min, D. (2017). Housing finance reform and the shadow money supply. J. Corp. L.43, 899. https://heinonline.org/HOL/LandingPage?handle=hein.journals/jcorl43&div=38&id=&page=

Murau, S. (2017). Shadow money and the public money supply: The impact of the 2007–2009 financial crisis on the monetary system. Review of International Political Economy24(5), 802-838. https://www.tandfonline.com/doi/abs/10.1080/09692290.2017.1325765

Tatlıyer, M. (2017). The 2008–2009 financial crisis in historical context. In Global financial crisis and its ramifications on capital markets (pp. 3-17). Springer, Cham. https://link.springer.com/chapter/10.1007/978-3-319-47021-4_1






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