Mortgage Crisis on Money Supply
Impact of the Mortgage Crisis on Money Supply in the US
AMESIA HARRIS
FINANCE 364
PROFESSOR CROSS
Impact of the Mortgage Crisis on Money Supply in the US This paper presents the effects of expansionary monetary policy to macro economic variables in the economy. The United States of America recorded a mortgage crisis since 2007. The financial sector issued out massive amounts of money to individuals to acquire homes. This was in line with government campaigns for equitable housing of US citizens in the United States. This led to an increase in loans offered to citizens to purchase homes, leading to an expansionary monetary policy. Though this strategy brought equity in home ownership, it also brought financial imbalance in the economy as a high number of home owners who had borrowed the money could not afford to pay back the borrowed amounts. It thus became hard for the financial institutions to take back the excess liquidity in the hands of individuals in the society (Borek, 2010).
GDP Growth and Money Supply The increase in money supply in the United States was an expansionary monetary policy in the economy (Blinder, & Zandi, 2010). This led to an increase in the nominal money supply in the economy. In normal circumstances’, an expansionary monetary policy is expected to boost income while at the same time driving interest rates down. Although the increase in money supply in the United States’ economy increased lending, it had the potential of triggering competition in the financial sector, increasing access to loans and eventually leading to an increase in output. Governments employ various expansionary measures including reduction of lending rates, interest rates, and buying back government securities among other expansionary measures. However, in this case, the deregulation of the financial sector as well as below optimum credit methods employed by financial institutions handicapped the effect of expansionary monetary policy in spurring growth.
AMESIA HARRIS
FINANCE 364
PROFESSOR CROSS
Impact of the Mortgage Crisis on Money Supply in the US This paper presents the effects of expansionary monetary policy to macro economic variables in the economy. The United States of America recorded a mortgage crisis since 2007. The financial sector issued out massive amounts of money to individuals to acquire homes. This was in line with government campaigns for equitable housing of US citizens in the United States. This led to an increase in loans offered to citizens to purchase homes, leading to an expansionary monetary policy. Though this strategy brought equity in home ownership, it also brought financial imbalance in the economy as a high number of home owners who had borrowed the money could not afford to pay back the borrowed amounts. It thus became hard for the financial institutions to take back the excess liquidity in the hands of individuals in the society (Borek, 2010).
GDP Growth and Money Supply The increase in money supply in the United States was an expansionary monetary policy in the economy (Blinder, & Zandi, 2010). This led to an increase in the nominal money supply in the economy. In normal circumstances’, an expansionary monetary policy is expected to boost income while at the same time driving interest rates down. Although the increase in money supply in the United States’ economy increased lending, it had the potential of triggering competition in the financial sector, increasing access to loans and eventually leading to an increase in output. Governments employ various expansionary measures including reduction of lending rates, interest rates, and buying back government securities among other expansionary measures. However, in this case, the deregulation of the financial sector as well as below optimum credit methods employed by financial institutions handicapped the effect of expansionary monetary policy in spurring growth.
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