How the 2008 financial crisis transformed into a major economic crisis and crashed the economy.

Q1 [50 points] Based on your reading of Blanchard’s Chapter 1, using the relevant graphs and data in the Chapter and Lecture notes, explain

a) why the drop in housing prices caused a major financial crisis in 2008, and

b) how the 2008 financial crisis transformed into a major economic crisis and crashed the economy.

Q2 [50 points] Using the relevant graphs and data in Chapter 1 and Lecture notes, explain why and how the 2008 crisis in the U.S affected the world economy and turned into a world economic crisis.