Explanation of the causes and consequences of the 2008 global financial crisis and the role of monetary policy in mitigating its effects.
Monetary policy: This refers to the process by which central banks manage the supply and demand of money in the economy to achieve economic growth and stability.
Financial deregulation: The removal of regulations that restrict the activities of financial institutions and markets.
Subprime lending: The practice of lending money to borrowers with poor credit ratings or limited credit history.
Securitization: The process of bundling individual loans or financial assets to create a new financial instrument that can be sold to investors.
Credit default swaps: Financial contracts that offer protection against potential loan defaults by one party to another.
Derivatives: Financial instruments that derive their value from underlying assets or commodities.
Mortgage-backed securities: A type of security that is backed by a pool of mortgages, which provide a stream of income to investors.
Systemic risk: The risk that the failure of one financial institution or market could cause a ripple effect across the entire financial system.
Financial contagion: The spread of financial crisis from one country, region, or sector to another, through interconnected financial links.
Central bank interest rates: The rate at which central banks lend money to commercial banks or the interest rate that is charged to borrow money from the central bank.
Debt Crisis: Countries and/or organizations that have accumulated an excessive amount of debt, which could lead to default.
Credit Crisis: A situation where the availability of credit is severely restricted due to the banks' unwillingness to lend, causing the overall economy to weaken.
Stock Market Crash: A sudden and significant drop in the stock market's value, causing widespread panic and economic damage.
Currency Crisis: A situation where the value of a country's currency falls significantly against other currencies due to various factors, such as high inflation, low interest rates, or excessive money printing.
Banking Crisis: A situation where banks experience a significant number of bankruptcies, run out of liquidity or experience significant losses, posing a threat to the overall economy.
Inflation Crisis: A situation where the prices of goods and services in a country rise due to an increase in the money supply or other factors, leading to decreased purchasing power and economic instability.
Sovereign Debt Crisis: A situation where a country is unable to pay back its foreign debt, leading to default or restructuring.
Real Estate Bubble: A situation where the prices of houses and other properties rise to an overly high level, creating a bubble that eventually bursts, leading to significant economic damage.