As a recession kicks in we will have to pay back the

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made putting the economy at risk, as it builds up it will eventually explode causing a recession. As a recession kicks in, we will have to pay back the debt which will lower our consumption and cause another recession in the economy. We will not have enough funding to make good investments, missing good opportunities. 5) Should fiscal policy be used to ameliorate the post-crisis downswing? In what sense can debt be seen both as a cause and as a consequence of the crisis? Gov deficit and expenditure can help. The private sector is not spending so the Gov needs to increase spending to make up for the lack of spending of the private sector. Private sector is the cause of the crisis and Gov needs to fix it to help. How would monetary policy effect this, as decreasing the interest rates will increase debt and covering debt with more debt doesn’t solve the problem. 6) According to Adair Turner, how could the private sector’s leverage be constrained in the future? And according to Guttenberg and Werner? Is it a borrowing (i.e., demand) problem or a lending (i.e., supply) problem? Increase the condition for someone to apply for a loan, based on supply and demand. On the supply side banks should have reserves (based on reserve ratios) Its not the supply that’s the problem, its how the loans are distributed. Depending on what it is used to finance, is it improving GDP? Inflation? Ex consumption does both while financial market investment
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