Examlex
COPING WITH A STOCK MARKET CRASH: BLACK MONDAY, 1987
How did the Fed successfully respond to the major stock market crash in 1987?
On October 19, 1987, known as "Black Monday," the Dow Jones index of the stock market fell a dramatic 22.6 percent in one
day. Similar declines were felt in other indexes and stock markets around the world. These
declines shocked both businesses and investors. In just 24 hours, many people and firms found themselves much less
wealthy. The public began to worry that banks and other financial institutions—to protect their own
loans and investments—would call in borrowers’’ existing loans and stop making new ones. A sharp drop in available credit
could, conceivably, plunge the economy into a deep recession.
Alan Greenspan had just become chairman of the Federal Reserve that year. As a sophisticated economist with historical
knowledge of prior financial crises, he recognized the seriousness of the situation. He quickly issued
a public statement in which he said that the Federal Reserve stood ready to provide liquidity to the economy and the
financial system. Banks were told that the Fed would let them borrow liberally. In fact, the Fed provided liquidity to such an
extent that interest rates even fell. As a result of Greenspan’s action, "Black Monday" did not cause a recession in the United
States.
-The Stock Market Crash in 1987 could have caused a recession in the economy had it resulted in:
Pornographic Films
Pornographic films are visual media that depict sexual content explicitly for the purpose of sexual arousal.
Short Prison Sentences
Penitentiary terms that are brief, often criticized for being ineffective in deterring crime or rehabilitating offenders.
Physical Attractiveness
The extent to which an individual's physical characteristics are deemed beautiful or visually appealing.
Close Friendship
An intimate, deep bond between people characterized by mutual respect, affection, and trust.
Q15: According to the application, which political party
Q22: If Andrew is paid an interest rate
Q24: The reason why raw fish is not
Q30: Discuss an important difference between the government
Q56: The present value of a payment to
Q98: According to the application, wealth holding in
Q139: If the economy finds itself at a
Q162: Determine the impact of an increase in
Q166: Refer to Figure 14.3. At an interest
Q178: In the U.S., the Federal Reserve gets