Chapter 5 Flashcards
What is a bank contagion
Is when the fear of possible trouble of a bank might affects other banks
What is a recession?
A significant decline in economic activity lasting more than a few months
What is the technical indicator of a recession?
Usually 2 consecutive quarters of negative GDP, but this indicator is not required
What does the Recession cause?
declines in spending and lending
What is a depression?
it is a severe economic downturn. depression>recession
What is a depression typified by?
length, lack of access to credit, bankruptcies, high unemployment, great reduced trade and commerce
What is a bubble?
An unsustainable rise in prices
What percentage did the DJIA lost in the depression in the roaring 20’s?
it lost 89.2% of its value
What percentage did the DJIA lost in the recession in the housing bubble?
It lost 53.4% of its value
What are the basic operation of commercial banks?
To take in deposits from individuals and small firms
- Make loans
What are mismatched loans?
Short-term money makes long-term loans
Can a great amount of people take out their money from the bank? why. and what is it called?
No, if a large amount of people request their money the bank wouldn’t be able to pay the money back bc they money is invested in long-term investments. That is called a Bank Run
What was the great depression solution?
the FDIC
