Irvine Valley College Macroeconomics and Financial Intermediaries Questions
Question Description
Read the following excerpt by former Fed Chair, Dr. Ben Bernanke: https://www.dropbox.com/s/ollo9kfsk8dllzk/Bernanke_Lecture3.pdf?dl=0 (Links to an external site.)
Think about the following questions:
1) How was this a failure of financial intermediation? What broke? Think about why intermediation exists (remember the reasoning behind intermediation/why banks exist).
2) This failure in financial intermediation caused which component of GDP to collapse? Which component of AD/AS to collapse?
3) What did the Fed do to restore financial intermediation and by extension, how would this be captured in an AD/AS model?
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