choose a financial crisis (for example, the 2006–2008 financial meltdown, the financial collapse of the Great Depression, the United Kingdom leaving the European Union, etc.) and examine the domestic, regional, and/or global impacts on economic activity (for example, borrowing, trade, output (GDP), unemployment, etc.)

choose a financial crisis (for example, the 2006–2008 financial meltdown, the financial collapse of the Great Depression, the United Kingdom leaving the European Union, etc.) and examine the domestic, regional, and/or global impacts on economic activity (for example, borrowing, trade, output (GDP), unemployment, etc.)

 

answer:

Financial crisis of 2006-08 basically started due to sub prime lending to housing borrowers. When housing boom was bursted, markets came crashing and banks were bankrupted.

Since markets crashed, sentiments of public to invest came down. Thus, there was decrease in investment not just in US but in other countries as well.

At the beginning of the crisis unemployment was quite low: in December 2007 when the economy entered recession the rate was just 5%. However, housing prices continued to decline and stock prices, which had been increasing as measured by the S&P500, began to decline in October 2007. By October 31, 2008 the S&P500 was down 37% from a year earlier and it had dropped 17% in the month of October 2008 alone. The Case-Shiller index was down 18% from a year earlier. The unemployment rate was 6.2% in September 2008 up from 4.7% in September 2007 but the increase was modest relative to the problems associated with the financial crisis. However, the unemployment rate increased to 6.6% in October, to 6.9% in November and to 7.4% in December 2008. Since unemployment rose, it implies there was contraction in GDP.

The effects of this recession are likely different from prior recessions because of simultaneous shocks in the stock market, the housing market and the labor market. There was considerable decline consumption spending as well during this period.

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