Monetary Policy and Financial Crises

Question 1

2 causes of inflation mainly

Answer 1

loose monetary policy

expectations for future by firms and households

Question 2

what does it mean to buy on the margin

Answer 2

buying shares on credit

you can get rich quickly but can also find yourself in debt if prices fall

Question 3

what does irrational exuberance mean

Answer 3

unstable investor enthusiasm eg not questioning the values of shares

Question 4

3 types of bubbles

Answer 4

boom bust
assest price bublle
credit bubble

Question 5

example of an asset price bubble

Answer 5

housing market bubble

Question 6

what is a bubble

Answer 6

dramatic increase in prices far above their fundamental value typically followed bya crash

Question 7

how might you tell there is a bubble? what are its characteristics

Answer 7

rapidly increasing prices
people are denying its a bubble
people feel envy/regret that they havnt participated

Question 8

causes of bubble

Answer 8

innovation(new products, people dont understand its underlying value)
overconfidence
irrational behvaoiur
lax monetary policy

Question 9

example of innvation caused bubble

Answer 9

dot com bubble
tech and internet new

bit coin

Question 10

4 phases of bubble

Answer 10

stealth
awareness
mania
crash