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Unformatted text preview: skyrocketed and then crashed. Just like the US, Japans banks had issued many loans backed by stock and land and when the value of this collateral fell, borrowers defaulted on their loans. This reduced the banks ability to make new loans creating a credit crunch that made it harder for firms to finance investment projects. We are currently at the tipping point Japan was at. If we dont take action and lower the interest rate, the US could end up like Japan did in the 90s. d. this level of decline has not been seen in the past decade and it could be the beginning of the first large drop on a rollercoaster ride in our economy i. these fluctuations are normal in our economy and inevitable, but ii. with the right economic policy, in this case, the lowering of interest rates, we can hope to smooth out the fluctuation of GDP below potential and prevent a larger than necessary drop. But this will only work if we act quickly and decisively. iii. 1205 oak ave. davis....
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This note was uploaded on 04/11/2009 for the course ECON 101 taught by Professor Miyanishi during the Spring '08 term at UC Davis.
- Spring '08