Question 2 Answer each of the following questions: I. Explain why the aftermath of the downturn in the financial cycle c

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Question 2 Answer each of the following questions:
I. Explain why the aftermath of the downturn in the financial
cycle can result in a deep and prolonged recession. (5 marks)
II. Explain why the fall in risk typically leads to a rise in
the leverage of risk-neutral investment banks. (5 marks)
III. Explain why rising housing and financial asset prices do
not dampen the upswing of the financial cycle. (5 marks)
IV. Explain the effect of an increase in amount and duration of
unemployment benefits on equilibrium rate of unemployment. Ensure
to provide an economic explanation for that effect (you do not have
to draw IS, PC or MR curves).