When the Housing Bubble Collapsed, the Entire Borrowing and Lending

question 32

Multiple Choice

When the housing bubble collapsed, the entire borrowing and lending engine of the economy ground to a halt because:

• A) no one could tell which banks were safe, and which were not.
• B) banks wanted to lend to no one, in case they turned out to be a bad risk.
• C) the herd instinct became to not borrow or lend.
• D) All of these statements are true.

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Definitions:

Social Loss

The total reduction in welfare or well-being to society, typically resulting from inefficient market conditions like monopolies or externalities.

Consumer Surplus

The discrepancy between the price consumers are prepared to pay for a product or service and the price they end up paying.

Producer Surplus

The difference between the amount producers are willing to accept for a good or service versus what they actually receive.

Subsidies

Financial support provided by governments to individuals, businesses, or institutions to promote certain activities deemed beneficial.