Question
Financial Crisis of 2008-09. (a) Remember how the 2008 crisis was triggered by a bunch of people, who probably should not have been lent giant
Financial Crisis of 2008-09. (a) Remember how the 2008 crisis was triggered by a bunch of people, who probably should not have been lent giant amounts of money in the first place, not making their mortgage payments. Write down three major differences between prime and subprime mortgages. How does the bank decide who gets which kind of loan? (b) Fastforward to 2019, where bad mortgages may not be the problem. Consider, instead, the mountain of student debt out there, which is basically a $1.5 trillion bet that a generation of underemployed young people will ever be able pay off a hundred grand in tuition loans in an economy where even hedge funders are getting creamed. Already, a lot of them aren't paying and can't pay. Could this be another bubble in the making? Why/Why not? Does Irrational exuberance explain the formation of this bubble, at least partly? Why/Why not? (c) What is the difference between a slowdown and a recession? How can a slowdown lead to a recession? What role do people's expectations play in creating a recession?
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