What led to the over-extension of credit by some private banks and central banks in the euro zone prior to the 2009 euro crisis?
What will be an ideal response?
Differences in interest rates in euro zone countries did not accurately represent differences in risk and inflation. Consequently banks were able to borrow at very low real interest rates while assuming relatively high levels of default risk. Once it became apparent that sovereign default and private bank failures were not only possible but likely in some countries, borrowing costs skyrocketed in those countries. In some cases, credit was cut off entirely.
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Referring to Table 12.2, if the nominal interest rate is 9.5 percent and there is no inflation, which investments will be undertaken?
A) E and D B) E C) C, D, E D) none of the above
Which of the following is NOT true of the European Union
A. The EU promoted freer trade between member countries B. The EU allows members to benefit from economies of scale in selling to a larger market C. The EU provides a common currency for a subset of its members D. The EU was established in 1999