Suppose a central bank identifies an increase in lending to the floral industry. In particular, many small
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Suppose a central bank identifies an increase in lending to the floral industry. In particular, many small businesses are borrowing aggressively to import tulips. As market participants observe a sharp increase in the price of tulips, the central bank considers its actions.
a) This illustrates which type of price bubble?
b) What do you think the central bank should do?
c) How would your answer to
b) change if there was no increase in lending to the floral industry but tulip prices were nonetheless increasing sharply?
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