1.2. In 2008, problems in the financial sector led to a drying up of credit around the country:

homebuyers were unable to get mortgages, students were unable to get student loans, car buyers were unable to get car loans, etc.

a. Explain how the drying up of credit can lead to compounding effects throughout the economy and result in an economic slump.

b. If you believed the economy is self-regulating, what would you advocate that policy makers do?

c. If you believed in Keynesian economics, what would you advocate that policy makers do?