Financial Risk Manager Part 1
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The period leading up to the financial crisis of 2007-2009 was characterized by historically low interest rates in the United States. This was a significant factor in the economic landscape of the time. What was the primary reason for the low interest rates?
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TTanishq
A
Low savings rates in the U.S.
B
High savings rates in the U.S.
C
Low demand for credit in the country
D
Accommodative monetary policy
Explanation:
In the years leading up to the financial crisis, the U.S. government had been striving to reduce interest rates so as to increase lending rates and grow the economy. This is known as an accommodative monetary policy. The goal of such a policy is to make money cheaper to borrow, thereby encouraging spending and investment. This can stimulate economic growth, but it can also lead to inflation and asset bubbles if not managed carefully. In the case of the 2007-2009 financial crisis, the low interest rates contributed to a housing bubble, as people were able to borrow money cheaply to buy homes. When the bubble burst, it led to a severe economic downturn.
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