This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: b. By nature disequilibrium c. One Major Cause: Monetary injections through credit markets i. Monetary injection creates a falsely low interest rate ii. Low interest rate induces spending on consumption and investment 1. Especially investment in long-term capital projects. 2. A boom iii. Money flows to households (largely as wages) iv. Households save less (lower interest rates expected) and spend more. v. Interest rates increase due to lower savings. vi. Many projects will no longer be profitable, and are abandoned. 1. The bust...
View Full Document
- Fall '08