Explain what caused the Great Recession of 2008 Is it possib

Explain what caused the Great Recession of 2008. Is it possible to avoid a recession in the future.

Solution

Loose monetary policy and lack of proper financial regulation caused great recession in 2008. Ultra low interest rates along with the very easy term conditions and the government\'s intention to provide house to every one led to give easy loans to the sub-prime borrowers without proper paper work and checking their finacial creditibility. So there was high demand for housing that turned into bubble which eventually burst when the people started defaulting and there was sudden drop in demand and house prices. All this led to NPAs in the banks balance sheets that created financial instability and resulted in decline in cheap money supply and economy entered recession.

Yes it is possible to avoid recession if there are proper rules and regulations and implementation of them time to time, but in reality it is very difficult due to various greedy reasons.