Impact of the Mortgage Crisis on Money Supply in the US This paper presents the effects of expansionary monetary policy to macro economic variables in the economy. The United States of America recorded a mortgage crisis since 2007. The financial sector issued out massive amounts of money to individuals to acquire homes. This was in line with government campaigns for equitable housing of US citizens in the United States. This led to an increase in loans offered to citizens to purchase homes, leading to an expansionary monetary policy. Though this strategy brought equity in home ownership, it also brought financial imbalance in the …show more content…
This makes it hard to satisfy the increasing demand for the country’s cheaper products in the international markets. This is evident in the United States’ widening balance of payments (Braxton, 2009).
Corrective Measures As a result of the above consequences of poorly managed money supply in the economy, the United States government, European, and other governments have put measures in place to tighten rules of lending in the financial sector. Previously, it was very easy to access credit in America since the lending process lacked effective due diligence procedures to ascertain the viability of lending to clients. Financial institutions have been forced to develop their own internal credit appraisal systems instead of relying on credit rating companys’ information. The government has also injected more capital in the affected financial institutions thus increasing the level of loanable funds in such institutions that the organizations can lend to key sectors of the country’s economy to spur growth. These changes have seen the country’s economy move from negative growth in 2008 and 2009 to positive economic growth in 2010 and 2011 (Vives, 2006).
In conclusion, from the above study, effective monetary policy is critical in the management of an economy. The mortgage crisis as well as the effect that the crisis had on the economy stresses on the need for effective management of money