Economics Exam 2 Review: Inequality, Debt, and the 2008 Financial Crisis

Vocabulary practice flashcards covering income inequality, debt and deficit, and the 2008 financial crisis based on the Economics Exam 2 review assignment.

Poverty in the U.S.

A condition in which an individual can barely pay for basic living costs to get by, aggravated by wealth being distributed very unevenly across the country.

Causes of Income Inequality

Factors including the Industrial Revolution, globalization, tax policies favoring the wealthy, and weaker unions that concentrated wealth among business owners, investors, and highly skilled workers.

Effects of Income Inequality

Higher poverty rates among people lacking advanced education or specialized skills, making it difficult for them to afford basic necessities such as housing, food, and health care.

Gini Index

A measurement indicating the degree of income inequality in a nation, where a higher score signifies a larger income gap.

Proposed Fixes for Income Inequality

Policy remedies highlighted to address wealth disparities, which include affordable education, job training programs, a higher minimum wage, and affordable child care.

Debt

Money that is owed to an individual or a business after it has been loaned.

Deficit

The financial state that occurs when expenses exceed total income over a given period.

Default

The failure of a nation to pay its debts on time, which triggers spiking borrowing costs, severe budget cuts, declining living standards, soaring prices, job losses, and economic recession.

Debt-to-GDP Ratio

A metric that divides what a country owes by the total size of its economy, normalizing national debt to enable international comparisons and determine if debt is outgrowing the ability to service it.

Current U.S. Debt-to-GDP Status

A ratio of approximately $123\text{--}125\%$, reflecting about $\$40\text{ trillion}$ in total debt against a $\$32\text{ trillion}$ economy, with publicly held debt near $100\%$.

Foreclosure

A legal process where a lender seizes and sells a home used as collateral after a borrower stops making mortgage payments, damaging the borrower's credit and potentially leaving residual debt.

Subprime Loans

Mortgages offered to borrowers with weak credit ratings or low, unverified incomes, which typically carry higher fees and interest rates that escalate sharply after a few years.

Economic Bubble

A market condition where the price of an asset surges far above its intrinsic worth due to easy credit and speculation, until purchasing ceases and prices collapse, causing widespread economic harm.

Root Cause of the 2008 Financial Crisis

A speculative housing bubble driven by unaffordable subprime loans that were bundled into securities, which collapsed once home prices declined and borrowers defaulted en masse.

Mortgage-Backed Securities (2008 Crisis Role)

Packaged pools of mortgages sold globally to banks, pension funds, and investors as safe assets, which caused system-wide credit freezes and economic losses when the underlying mortgages failed.

TARP (Troubled Asset Relief Program)

A $\$250\text{ billion}$ emergency government bailout program created to provide financial relief and capital directly to struggling banks during the 2008 financial crisis.

Dodd-Frank Law

A federal legislative reform passed to enhance financial transparency, shield consumers from predatory lending practices, and tighten regulatory rules on financial institutions.

U.S. Government 2008 Crisis Interventions

A multi-part federal intervention comprising bank emergency loans, the $\$250\text{ billion}$ TARP bailout, Treasury stress tests, an $\$800\text{ billion}$ stimulus package, and the Dodd-Frank law.