The Financial Crisis Of 2008 Essay

865 Words 4 Pages
The financial crisis of 2008
The financial crisis of the year 2007 and 2008 which is also known as the global financial crisis is mainly considered by economist to be the world worst financial crisis since the great depression period of in the 1930s. The crisis made economist and financial experts rethink monetary and fiscal policies. During this crisis, the government, economists and financial experts and other policy makers became victims of the unforeseen crisis. This study will investigate what monetary policies and fiscal policies caused the crisis. The paper will discuss the effects of implementation of both the fiscal and monetary policies in reaction to the crisis. Lastly, it shall evaluate whether the solutions worked in both short and long term capacity
Monetary policies that caused the crisis
From 2005, the Federal Reserve recognized that is overly expansive monetary policy had created the potential for higher inflation. Instead of making the appropriate measures to tighten its policy through its standard procedure or raising its targeted interest rate the Fed did the opposite where there were no policies to prevent the decrease in interest rate. Due to the low-interest rates, people borrowed a large amount of money from financial institutions and commercial banks. This led to the collapse in housing prices that led to a series of defaults on mortgage-backed securities. Rapid increase in the money available for use led to a rapid increase in…

Related Documents