Credit Booms & Credit Busts

The video discusses the financial crisis of 2008, focusing on macroprudential regulation and its systemic approach. It explores the roles of monetary and fiscal policies in financial cycles, highlighting the limitations of relying solely on macroprudential measures. The discussion extends to fiscal policy during financial booms, using Spain and Ireland as examples. The video concludes with an analysis of quantitative easing and its implications for financial stability.

What was the primary focus of regulation before the 2008 financial crisis?

• Consumer protection

• Systemic risk management

• Global economic trends

• Individual institutions

What is a major concern regarding macroprudential frameworks?

• They are too simple to implement

• They create unrealistic expectations

• They focus too much on fiscal policy

• They ignore international regulations

Which policy has been downplayed in favor of monetary policy over the last few decades?

• Social policy

• Trade policy

• Fiscal policy

• Environmental policy

What is one of the objectives of macroprudential frameworks?

• To eliminate all financial risks

• To increase government spending

• To build up buffers during good times

• To reduce international trade

What is a political challenge associated with macroprudential policies?

• Increasing interest rates

• Balancing international trade

• Reducing taxes for corporations

• Implementing them during a financial boom

What is a key factor in the effectiveness of macroprudential policies?

• The level of international cooperation

• The political will to implement them

• The simplicity of the regulations

• The ability to predict financial cycles

What is a significant challenge in addressing financial cycles?

• The short duration of financial cycles

• The lack of available data

• The long lag between problem buildup and realization

• The overestimation of potential growth

What is the primary goal of quantitative easing?

• To increase government debt

• To reduce inflation

• To lower long-term interest rates

• To stabilize currency exchange rates

What is a potential risk of widespread quantitative easing?

• Higher unemployment rates

• Decreased asset prices

• Competitive currency devaluations

• Increased inflation

What is a common misconception about the function of reserves in quantitative easing?

• They stabilize the economy

• They reduce government debt

• They directly increase loan growth

• They are used for interbank lending