1. Describe three things the government did in response to the failure of several large financial institutions in 2008. Please provide different answer.

Given Answer: Dodd-Frank Wall Street Reform & Consumer Protection Act.: US govt modernized the regulatory framework and protected the consumers against the financial risks. This was done by President Obama using DFWSRCP Act. Americans now had a specialized consumer protection system, giving rise to more transparent market. The govt can now take necessary actions against firms who can affect the whole financial system to a larger extent. 2. Loaning the banks using asset-based commercial papers: The crisis led to severe bank runs as the consumers and investors wanted their money back. To maintain liquidity in the entire financial system, the federal bank announced that US banks can fetch funds using Asset-based commercial papers (ABCP) under Federal Reserve discount window. 3. Lowering of interest rates by the federal bank was a relief for all the bankers in the midst of crisis.

2. Why is it difficult to estimate the duration of demand deposits?