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Chapter 1: Q.5 (page 66)

What was the main cause of the recession that began in 2007?

Short Answer

Expert verified

The major reason for 2007 crisis was subprime mortgage crisis .

Step by step solution

01

Step 1. Introduction 

Recession is an economic situation where the economic activities declines, employment declines, expenditure of people declines etc.

02

Step 2. Explanation

The Great Recession, one of the worst recessions in US history, officially continued from December 2007 to June 2009. Low interest rates, easy credit, poor regulation, and the collapse of the housing market backed by toxic subprime mortgages were the main reasons. But everything boils down to relaxed regulations on banks.

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Most popular questions from this chapter

Can you date the latest financial crisis in the United States or in Europe? Are there reasons to think that these crises might have been related? Why?

If history repeats itself and we see a decline in the rate of money growth, what might you expect to happen to

a. real output?

b. the inflation rate?

c. interest rates?

What is the typical relationship among interest rates on three-month Treasury bills, long-term Treasury bonds, and Baa corporate bonds?

How can changes in foreign exchange rates affect the profitability of financial institutions?

The following table lists the foreign exchange rate between U.S. dollars and British pounds (GBP) during April 2017. Which day would have been the best for converting $250 into British pounds? Which day would have been the worst? What would be the difference in pounds?
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