UNIT 5 The Banking System - Discussion 2

UNIT 5 The Banking System - Discussion 2 //
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UNIT 5 The Banking System - Discussion 2 // By increasing the money supply, the Federal Reserve can lower interest
rates. This has a broad impact on the economy as mortgages, business loans, etc. can be obtained less expensively.
Some economists believe that the money supply increases contributed to a housing bubble and the subsequent housing
market crisis of 2008-09. They suggest that this event is an example of how the Fed can create recessions by artificially
encouraging bad investment decisions, and that the same pattern can be seen in the tech stock bubble of the late 1990s
and other recessions even as far back as the Great Depression. Evaluate this view of the cause of recessions. Do you
agree or disagree? Why? Though your answer needs to be correct in terms of economic theory (be sure to read the
assigned chapters), creativity and diverse opinions are strongly encouraged.
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