Lecture Four: The Aftermath of the Crisis

Lecture 4, Video Clip 38: Evaluation of special lender-of-last-resort programs
Questions for Classroom Discussion:

  1. Summarize the effects of the special lender-of-last-resort programs.
  2. What were the strengths of the lender-of-last-resort programs? Why were they not continued on a permanent basis?

Lecture 4, Video Clip 39: Structure of the FOMC
Questions for Classroom Discussion:

  1. Give a brief overview of the purposes of the Federal Open Market Committee (FOMC).
  2. Who serves on the FOMC?

Lecture 4, Video Clip 40: Federal funds rate
Questions for Classroom Discussion:

  1. Summarize the FOMC traditional monetary policy actions during the crisis.
  2. Under what circumstances would the FOMC raise the federal funds rate? Why would the FOMC lower the rate? What does the Federal Reserve do to influence the federal funds rate?
  3. Why can't the federal funds rate be lowered to below zero? What does it mean to say that "the effectiveness of the federal funds rate was exhausted"?

Lecture 4, Video Clip 41: Large-scale asset purchases
Questions for Classroom Discussion:

  1. What are large-scale asset purchases (LSAPs), also sometimes called quantitative easing? What is the purpose?
  2. How are bond prices and interest rates related?
  3. Explain the effects of LSAPs on interest rates. Explain the relationship between housing prices and interest rates.

Lecture 4, Video Clip 42: Impact of LSAPs on the Federal Reserve's balance sheet
Questions for Classroom Discussion:

  1. How does the Federal Reserve pay for LSAPs? Does the Federal Reserve print money to buy the assets?
  2. What were the effects of the LSAPs on Federal Reserve assets? On Federal Reserve liabilities?
  3. What is the effect of LSAPs on the money supply? What are the risks of LSAPs?
  4. What is the difference between monetary and fiscal policy? What did Chairman Bernanke mean by saying the federal government actually made a profit on LSAPs?

Lecture 4, Video Clip 43: Communication about monetary policy
Questions for Classroom Discussion:

  1. Summarize the steps that were taken by the Fed to improve communication.
  2. How can improved communication make monetary policy more effective?
  3. Explain how each of the following may contribute to the effectiveness of monetary policy: establishing news conferences following some FOMC meetings; announcing that the FOMC has an inflation goal of 2 percent in the medium term; and projecting the future path for the federal funds rate.

Lecture 4, Video Clip 44: Economic recovery
Questions for Classroom Discussion:

  1. Define a recession.
  2. If the recession ended so long ago, why has the recovery not been stronger?
  3. Compare the length of the recovery to the length of the recession.

Lecture 4, Video Clip 45: Housing is slowing the recovery
Questions for Classroom Discussion:

  1. How can low prices of housing slow the economy's recovery?
  2. What is the relationship between current housing prices, expected housing prices, interest rates, and overall economic conditions?

Lecture 4, Video Clip 46: Financial and credit markets are slowing the recovery
Questions for Classroom Discussion:

  1. Why are credit markets so slow to recover? What are examples of continuing weaknesses in credit markets?
  2. What are the limits of monetary policy in promoting economic recovery?
  3. Explain how conditions in Europe can slow the U.S. recovery.
  4. What are some examples of "headwinds" faced by the U.S. economy?

Lecture 4, Video Clip 47: Prospects for long-term economic growth in the U.S.
Questions for Classroom Discussion:

  1. Chairman Bernanke showed a graph of real GDP over the last century. What stands out as its most important feature?
  2. Describe the determinants of long-term economic growth. Can the continuing sluggish economic conditions affect long-term growth in the economy?
  3. How have past recessions affected long-term growth?

Lecture 4, Video Clip 48: Post-crisis regulatory changes; the Dodd-Frank Act
Questions for Classroom Discussion:

  1. Summarize the primary vulnerabilities that contributed to the financial crisis.
  2. How does the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 approach the following issues?
    1. Regulators tracking and evaluating the entire financial system
    2. Key financial institutions
    3. Too-big-to-fail institutions
    4. Inefficiencies in markets of relatively new instruments (such as new forms of derivatives)
    5. Insufficient and ineffective consumer protection in some markets

Lecture 4, Video Clip 49: The effects of the crisis on central bank practice
Questions for Classroom Discussion:

  1. How has the crisis affected Federal Reserve policy? What changes are we likely to see in the future? Explain why those changes are being made.
  2. Are there other changes that are not being made, but should be? Explain your position.

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Last Update: November 17, 2016