THE GREAT RECESSION Case Study Analysis

Question 1

Financial institutions were becoming too big to fail, having strong impacts over the world’ financial markets and the whole economies. It is because the banks were unnecessarily involve din the derivatives markets, the loans were provided to the individuals, who didn’t have the ability to pay back. In addition, the derivatives were highly overrated by the rating agencies, which attracted the banks to make such legal fraud. Therefore, by analyzing the past recession, it is recommended that bank should be prevented from being too big to fail, as failure would become a large catastrop he and ultimately it would need the government support or bailout to get safe from failure. In order to keep the economies safe, it’s necessary to include some laws for banks regarding their capital requirement, sell out of subsidiaries or branches, increasing reserve or different measures, which could save the financial institution from becoming too big or resulting in a recession.

Question 2

Increasing money supply and economy’s debt are helpful government tools to get the economy recovered from a recession. However, to deal with a recessionary period or a pandemic situation like Covid-19, by raising debt and improving the money supply by lowering interest would increase the risk of inflation.

To curb with such inflation, the government would have to use a contractual monetary policy or increasing the tax requirements etc., which wouldn’t ultimately increase the interest rates, lowering the economy’s investment and employment levels. Similarly, to curb with Covid-19, the governments in different economies raised debt and reduce the interest rates to increase money supply, which helped the economies recovered from pandemic, however, the inflation rates have increased overall, making the good more expensive for the customers...............

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