I'm attaching the reference(s) as well as the questions I need answers to.

Reference part 1:-

The Financial Crisis and Economic Downturn of 2008 and 2009 In 2008 the U.S. economy experienced a financial crisis, followed by a deep recession. Several of the developments during this time were reminiscent of events during the 1930s, causing many observers to fear that the economy might experience a second Great Depression. The story of the 2008 crisis begins a few years earlier with a substantial boom in the housing market. The boom had several sources. In part, it was fueled by low interest rates. As we saw in a previous Case Study in this chapter, the Federal Reserve lowered interest rates to historically low levels in the aftermath of the recession of 2001. Low interest rates helped the economy recover, but by making it less expensive to get a mortgage and buy a home, they also contributed to a rise in housing prices. In addition, developments in the mortgage market made it easier for subprime borrowers-those borrowers with higher risk of default based on their income and credit history-to get mortgages to buy homes. One of these development was securitization, the process by which one mortgage originator makes loans and then sells them to an investment bank, which in turn bundles them together into a variety of "mortgage-backed securities" and then sells them to a third financial institution (such as a bank, pension fund, or insurance company). These securities pay a return as long as homeowners continue to repay their loans, but they lose value if homeowners default. Unfortunately, it seems that the ultimate holders of these mortgage-backed securities sometimes failed to fully appreciate the risks they were taking. Some economists blame insufficient regulation for these high- risk loans. Others believe the problem was not too little regulation but the wrong kind: some government policies encouraged this high-risk lending to make the goal of homeownership more attainable for low-income families. Together, these forces drove up housing demand and housing prices. From 1995 to 2006, average housing prices in the United States more than doubled. Some observ- ers view this rise in housing prices as a speculative bubble, as more people bought homes based on the hope and expectation that the prices would continue to rise. The high price of housing, however, proved unsustainable. From 2006 to 2009, housing prices nationwide fell about 30 percent. Such price fluctuations should not necessarily be a problem in a market economy. After all, price move ments are how markets equilibrate supply and demand. But, in this case, the price decline led to a series of problematic repercussions. The first of these repercussions was a substantial rise in mortgage defaults and home foreclosures. During the housing boom, many homeowners had boughtQuestions to answer. a) According to you, what factors were responsible that led this financial crisis in 2008? b) Why all the countries of the world were hit by this crisis? c) Do you think, Pakistan was also hit by the financial crisis? How bad the situation was? d) How did we overcome from that crisis? e) Do you think, currently as the mortgage facility is now spreading in Pakistan too don't you think in our less efficient market there is a chance that we might also face this bubble in future? f) How can we avoid such crisis in future?weir homes with mostly borrowed money and minimal down payments. When busing prices declined, these homeowners were underster they owed more their mortgages than their homes were worth. Many of these homeowners mopped paying their loans, The banks servicing the mortgages responded to the wehauls by taking the houses away in foreclosure procedures and then selling them The banks' goal was to recoup whatever they could. The increase in the num- ber of homes for sale, however. ever, exacerbated the downward spiral of housing prices. A second repercussion was lange losses at the various financial institutions that named mortgage-backed securities, In essence, by borrowing large sums to buy high risk mortgages. these companies had bet that housing prices would keep rising: when this bet turned turned bad, they found themselves at or near the point of hekruprey. Even healthy banks stopped trusting one another and avoided inter- bank lending because it was hard to discern which institution would be the next to go out of business. Because of these large losses at financial institutions and the widespread fear and distrust, the ability of the financial system to make loans even to creditworthy customers was impaired. Chapter 20 discusses financial ames, including this one, in more detail. A third repercussion was a substantial rise in stock market volatility Many companies rely on the financial system to get the resources they need for busi- ness expansion or to help them manage their short term cash flows. With the financial system less able to perform its normal operations, the profitability of many companies was called into question, Because it was hard to know how bad things would get, stock market volatility reached levels not seen since the 1930s. Higher volatility, in turn, led to a fourth repercussion: a decline in consumer con- fidence. In the midst of all the uncertainty, households started putting off spending plan. In particular, expenditure on durable goods plummeted As a result of all these event, the economy experienced a large contractionary shift in the IS curve. The U.S government responded vigorously as the crisis unfolded. First, the Fed cut its target for the federal funds rate from 5.25 percent in September 2007 to about zero in December 2008. Second, in an even more unusual move in October 2008, Congress appropriated $700 billion for the Treasury to use to res- que the financial systemn. In large part these funds were used for equity injections into banks. That is, the Treasury put funds into the banking system, which the banks could use to make loans; in exchange for these funds, the U.S. government became a part owner of these banks, at least temporarily The goal of the rescue for "bailout," as it was sometimes called) was to stem the financial crisis on Wall Street and prevent it from causing a depression on every other street in America. Finally, as discussed in Chapter 11, one of Barack Obama's first acts when he became president in January 2009 was to support a major increase in government spending to expand aggregate demand. As this book was going to press, the economy was recovering from the reces- son, albeit very gradually, Economic growth was positive but well below the rate experienced during previous recoveries. Unemployment remained high. Policy- makers could take some credit for having averted another Great Depression. Yet there is no doubt that the financial crisis of 2008-2009 and its aftermath condi- bated a painful event for many families