Question

In the Minsky model of boom and bust, expansion of the supply of money and credit will never lead to higher prices in real estate or stock markets.

True

or

False

Answer 1

False

The Minsky Model refers to the moment of market collapse due to the speculative activities of the investor or traders during the bullish market, and when this speculativeness reaches the highest point it leads to massive fall in stock prices or real estate prices which leads to market collapse.

The excess money and credit leads to more inflow of the capital which causes additional credit risk during bullish phase as investor would try to maximise the market returns, but then it will reach the peak from that it will start declining which leads to contraction of credit.