Case Study - The Credit Crunch
The late-2000s witnessed a financial crisis (often called the 'Credit Crunch' that resulted in the collapse of large financial institutions, the bailout of banks by national governments, declines in national housing markets and collapses in the institutions that financed house purchase, failures in businesses, increased unemployment, declines in consumer wealth, downturns in stock markets around the world, decline in economic activity and global recession in 2008.
Read the following article, Credit crunch: A sickness in the heart of Britain, and watch the two videos below and then consider the questions below.
Watch the following two video clips.
Video (1) - The credit crunch explained
Video (2) - Quantitative easing
- Examine the causes of the credit crunch. Specifically address the role of the US property market in the crisis.
- Explain why the crisis in the US property market spread to banks outside the US.
- Examine the factors that lead to a recessionary situation in 2008 following the bank crisis.
- Identify the characteristics of the recession in the UK.
- Describe how did the governments of affected countries reacted to the recession.
- To what extent do you consider that the policies introduced were effective in promoting a recovery? Identify the economic costs associated with these policies.