Author Question: Explain the forces that caused the savings and loan debacle in the latter half of the 1980s. What ... (Read 88 times)

sarasara · **on:** Jun 29, 2018

Explain the forces that caused the savings and loan debacle in the latter half of the 1980s.

What will be an ideal response?

Question 2

Suppose that in 2012, real GDP is larger than nominal GDP. The GDP price index in 2012 is definitely

A) less than 100.
B) larger than the GDP price index in 2012.
C) greater than 100.
D) negative.
E) less than the GDP price index in 2012.

DylanD1323 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Deposit insurance created a moral hazard problem in which savings institutions had an incentive to make riskier loans than they would have made in the absence of deposit insurance. In addition, because their deposits were federally insured, depositors of savings institutions had less incentive to monitor the risks incurred by the managers. As a result, the institutions extended large amounts of high-risk loans, many of which generated losses that resulted in failures by numerous institutions.

Answer to Question 2

A