finance

The great housing boom

The great housing boom

Readers Question: In 2008, did banks lend money to people who wanted to buy a house because they believed that the value of the housing market would keep rising? So even if people defaulted on their loan repayments then the banks could reposes the house as it was used as collateral. As the value of the house would be of greater worth than the loan so that the banks could make a profit. Is this correct? Thanks! This is partially correct. The great housing boom lasted from 1994 to 2006/07….

Labour plans for bank reforms – UK Bank market share

Labour plans for bank reforms – UK Bank market share

Readers Question: would you be able to comment on what the Labour party’s latest proposal to break up the banks to create competition? I can see some reasons that relate to safe guarding possible failures of large banks which can prove costly if the government are needed to bail them out. However, in terms of helping to stimulate economic growth, would it help or is it like shuffling a deck of cards? I would greatly appreciate hearing your opinion on this. Labour bank reforms include: A cap on the size of…

Credit Policy

Credit Policy

Credit policy / financial policy is the use of the financial system to influence aggregate demand (AD). Monetary policy affects AD through the Central bank controlling interest rates and the money supply. Fiscal policy affects AD through the use of government spending and taxation. Credit policy looks at factors such as: Bank lending rates to firms and households in the economy. The supply of credit and availability of loans from banks to firms and households. In normal economic circumstances, it was felt the Central Bank could adequately control the economy through…

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Functions and Examples of Financial Intermediaries

Definition of financial intermediaries A financial intermediary is a financial institution such as bank, building society, insurance company, investment bank or pension fund. A financial intermediary offers a service to help an individual/ firm to save or borrow money. A financial intermediary helps to facilitate the different needs of lenders and borrowers. For example, if you need to borrow £1,000 – you could try to find an individual who wants to lend £1,000. But, this would be very time consuming and you would find it difficult to know how reliable the lender…

World Financial Crisis AD/AS diagram

World Financial Crisis AD/AS diagram

Readers Question: how to illustrate the world financial crisis by using the graphs of aggregate demand and aggregate supply? The financial crisis has essentially caused an unprecedented fall in aggregate demand. Aggregate demand has fallen because: Bank lending decreased due to the credit crisis and shortage of bank funds. The shortage of bank lending has reduced investment and consumers spending (both components of AD) Falling house prices. The credit crisis has reduced the availability of mortgages and therefore reduced demand for buying houses. Also house prices were…