Question

A ‘displacement’ in the Minsky model of a general financial crisis is:

                        a.) a shock or innovation that is sufficiently large and pervasive enough to improve the economic outlook and profit opportunities in at least one    important sector of the economy.

                        b.) a factor that would lead business firms and individuals to borrow in order to take advantage of the increase in the anticipated profits in the sector.

                        c.) a factor which would hasten (or quicken) economic growth which, in turn,

                              perhaps would generate a feedback of even greater optimism (or speculation).

                        d.) all of the above.

Answer 1

d.) all of the above.

The nature of this displacement varies from one speculative boom to another. An unanticipated change of monetary policy might constitute such a displacement and some economists who think markets have it right and governments wrong blame "policy-switching" for some financial instability. In Minsky’s model, the boom is fed by an expansion of bank credit that enlarges the total money supply. Banks typically can expand money, whether by the issue of bank’s notes under earlier institutional arrangements or by lending in the form of addictions to bank deposits.