Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 30, Problem 5DQ
To determine
Explain the economy’s credit- granting mechanisms.
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What is the most important way for an economy to recover from an economic crisis caused by credit expansion?
The financial system must ensure the availability of efficient credit facilities to allow greater movements of goods and services.
Is it true or false?
Should governments pay off their debts and not be allowed to borrow any more except under special extreme circumstances (like the current pandemic or if they were at war)? Explain the reasons for your answer clearly.
Chapter 30 Solutions
Economics: Principles & Policy
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Similar questions
- Explain how financial crises lead to a credit crunch and a recession.arrow_forwardName any two quantitative tool to control credit creation in an economyarrow_forwardOne of the biggest problems for any economy is to figure out how to get or transfer money from people or firms who want to save (savers) to people or firms who want to borrow (investors). Explain how financial markets can help to solve this problem efficiently. Discuss how financial markets function and which tools they can offer to solve this problem. Discuss how financial systems are of crucial significance to adequate capital formation, which is indispensable to a speedy economic growth and development.arrow_forward
- Which of the following was an underlying cause of the economic crisis of 2008? a. The imposition of government regulations on Fannie Mae, Freddie Mac, and other lending institutions that eroded the conventional lending standards in place prior to the mid-1990s b. A failure of government to impose regulations on Fannie Mae, Freddie Mac, and other mortgage lenders c. Federal housing regulations that made it difficult for Fannie Mae, Freddie Mac, and other lending institutions to obtain sufficient loanable funds for the finance housing constructionarrow_forwardWhat impact will the economy face if institutions keep on showing more flexibility on giving loans and credits?arrow_forwardIf the Federal Reserve believes that the economy is heating up and there is a risk that inflation may accelerate, what could they do to slow down economic growth and tighten credit conditions in the economy? What did the FOMC decide in its last meeting?arrow_forward
- Why do the creditors generally charge higher interest rates on new borrowing?arrow_forwardInflation during the 1970s was much higher than most people had expected when the decade began. How did this affect homeowners who obtained fixed-rate mortgages during the 1960s? How did it affect the banks that lent the money?arrow_forwardCritically analyses the Mortgage Markets and its impact on the regional economiesarrow_forward
- The Economic Freedom of the World (EFW) rating of the United States (rose/or fell?) between 2000 and 2009. Which of the following are contributing factors to this change? Check all that apply. a.The private sector accounts for a greater share of credit than previously. b.Government spending on transfer payments increased during this period. c.Regulations on businesses were loosened during this period.arrow_forwardA successful entrepreneur may need a support of banking institutions and Non- banking financial institutions. Being an entrepreneur, which non- banking financial institutions help is required to run the business smoothly?arrow_forwardThe sharp increase in housing prices in the lead up to the financial crisis was fueled by all of the following EXCEPT a. ability of borrowers to easily borrow without putting the usual 20% down-payment on the house b. expectations that home prices would continue to increase c. high inflation rates d. deterioration of income and credit requirements on much mortgage lendingarrow_forward
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