Question

In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. Refer to The Economy in 2008. In the short-run the effects of the housing and financial crises a. raise both inflation and the unemployment rate. b. raise the inflation rate and reduce the unemployment rate. c. reduce the inflation rate and raise the unemployment rate. d. reduce both the inflation rate and the unemployment rate.

Answer 1

The answer is option A) In the short-run the effects of the housing and financial crises raise both inflation and the unemployment rate.

Step-by-step explanation:

Deregulation in the financial industry was the primary cause of the 2008 financial crash and an increase in world prices of oil and foodstuffs were affecting the economy.

The financial crisis permitted banks to engage in hedge fund trading with derivatives and when the values of the derivatives crumbled, banks stopped lending to each other.

It allowed speculation on derivatives backed by cheap and improper issuance of mortgages, available to even those with questionable creditworthiness.

In the short-run the effects of the housing and financial crises of 2008 raised both inflation and the unemployment rate.