Risk Allocation, Debt Fueled Expansion and Financial Crisis Paul Beaudry Department of Economics, UBC, and NBER Amartya Lahiri Department of...

Answer the following three article-based questions, based on the Paul Beaudry and Amartya Lahiri (2009) article *ATTACHED*, “Risk Allocation, Debt Fueled Expansion and Financial Crisis,”, in your own words:1. Briefly summarize the major items that caused the financial crisis of 2001 - 2007. What were the specific factors that the authors feel can explain the events that took place during the period? 2. Please indicate—in not more than a couple of sentences each—what the authors mean by the following five terms: “Empirical Patters,” “Debt Fueled Expansions (Models),” “Equilibrium Characterization,” “Default Risk,” and “Adverse Selection.” 3. Please describe and discuss—in detail—any two of the five terms covered in the article-based question # 2 above (there is no need to discuss the proofs, propositions, etc.). You must also offer your views as to how this relates to the current financial crisis.Next, please answer the following two contemporary questions, using PA 09 as your primary source of reference (feel free to use additional articles):A. How can we interpret and evaluate events that have unfolded in the world of finance, especially the events that took place in the US and in any other major country since early 2011 o 2012? Please extend the concepts covered in the article to your discussion of recent events.B. What is your view of the authors’ assertion that the resources available to financial intermediaries acts as a form of risk capital that links current states to future economic activity? Give a specific example, based on the activities of any one (or more) of the major financial institutions, which was observed in recent months, say, since January of 2012.