EC290 Study Guide - Final Guide: Production Function, Money Multiplier, Human Capital
Document Summary
The world economic crisis in 2008 & 2009. Developing countries were not affected as much. From 2000 to 2007, the world economy had a sustained expansion. Annual average world output growth was 4%, advanced economies growing at 2. 6% per year; developing economies at 6. 6% per year. In 2007: signs that the expansion was coming to an end started to appear. House prices decline had been increasing since 2000. The mortgage loans that had been given out between 2000 to 2007 were of poor quality; meaning the borrowers had taken on a loan too large and defaulted on payments. When housing prices declined, the value of the mortgage exceeded the value of the house, giving borrowers an incentive to default. Worst part: the banks giving out these shitty mortgages, bundled them into new securities and sold them to banks and investors. Many banks held these securities instead of the mortgages themselves.
