Asked by Gopika Murugesan on May 18, 2024
Verified
After the bubble in housing prices in 2008 burst, we learned that:
A) a bubble can be harmless in the sense that while people lose money, there is no lasting damage to the overall economy.
B) consumers usually loose, but large banks remain largely unharmed.
C) consumers face foreclosures and large banks face bankruptcy.
D) large banks must be bailed out, but households are usually not harmed.
Foreclosures
The legal process by which a lender takes control of a property, evicts the homeowner, and sells the home after the homeowner fails to make full principal and interest payments on a loan.
Banks
Financial institutions that accept deposits, offer loans, and provide a wide range of financial services to individuals and businesses.
Bubble
An economic condition characterized by the rapid escalation of asset prices followed by a contraction when the price increases are not supported by fundamentals.
- Understand the real-world consequences of economic bubbles on consumers and financial institutions.
Verified Answer
RB
Rebekah BowenMay 19, 2024
Final Answer :
C
Explanation :
The bursting of the housing bubble in 2008 resulted in many consumers facing foreclosures, while large banks faced bankruptcy or required bailouts. The overall economy also suffered lasting damage as a result of the crisis. Options A and B are incorrect as they both downplay the severity of the housing bubble burst; option D is incorrect as households were indeed harmed by the crisis.
Learning Objectives
- Understand the real-world consequences of economic bubbles on consumers and financial institutions.