Long Recessions Often Follow Banking Crises Because

question 157

Multiple Choice

Long recessions often follow banking crises because:

• A)banking crises may cause a surplus of credit, so that interest rates fall to levels so low that investors earn very little in interest income.
• B)the vicious cycle of deleveraging that follows leads to overpriced assets.
• C)consumer and investment spending increase too rapidly, causing high rates of inflation.
• D)monetary policy is not very effective because banks hold on to excess reserves and are unwilling to lend them out.

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Definitions:

Warranties

Legal guarantees from sellers that the product will meet certain quality and reliability standards, and offering repair or replacement if it does not.

High-Quality Goods

High-quality goods are products that meet or exceed customer expectations in terms of performance, durability, and satisfaction, often associated with higher standards of production and materials.

Product Quality

The characteristics and features of a product or service that bears on its ability to satisfy stated or implied needs.

Market Signaling

Process by which sellers send signals to buyers conveying information about product quality.