In 2008, the government acted in response to the adverse disruption of the financial sector, the authorities made an introduction of a host of policy measures in an attempt to unfreeze the market and bring back confidence in the financial sector.
This intervention was necessary. Firstly, capital injection was very efficient, especially when major stress abated. However, their efficiency was at the highest point on situations when they had combined with other measures or on situations where they were repeated. The announcement of liquidity support was effective initially as predicted by a reduction in the LIBOR-OIS spread. In most of the cases, the success of the interventions was successful based on particular circumstances which were prevailing on specific stages of the crisis (Frame & Federal Reserve Bank of Atlanta, 2009). The intervention had the consequences of cutting down on the market turmoil. For instance, there was huge liquidity provision by the bank of Japan. On top of this capital injection aided in cutting down on credit risk. On a situation where the government did not make and intervention, the financial sector could have gone to a deeper crisis, to a point where credits risk could have been very high and the market could have gone to solvency.
Frame, W. S., & Federal Reserve Bank of Atlanta. (2009). The 2008 Federal intervention to stabilize Fannie Mae and Freddie Mac. Atlanta, GA: Federal Reserve Bank of Atlanta.
In United States, a progressive tax system is used where people who have a higher income are taxed more than those with a lower income. A flat tax system implies that every individual will be given a similar tax rate, irrespective of their income. One of the benefits of replacing the current tax system with a flat rate…