Question

Asset bubbles:

                        a.) fuel credit bubbles in the Minsky model of a general financial crisis.

                        b.) are a monetary phenomenon and result from rapid growth in the supply of credit in the Minsky model.

                        c.) is a synonym for a mania in the Minsky model

                        d.) are a monetary phenomenon in which the supply of credit is decreasing with asset prices decreasing, as well.

Answer 1

B is right option

b.) are a monetary phenomenon and result from rapid growth in the supply of credit in the Minsky model.

-An asset-price bubble - occurs when asset prices are driven by investor psychology well above their fundamental economic values, - which are values based on realistic expectations of the assets' future income streams

-When a bubble bursts, asset prices drop, so companies are more likely to make risky investments as the value of their collateral also drops (moral hazard)

-Banks tighten lending standards as a result of the increase in risky investments

-The asset price bursts also reduces the value of bank assets, leading them to deleverage