(Consider This) Monetarists claim that the ﬁnancial crisis and resulting 2007-2009 recession were caused largely by
A) monetary policy that was too loose for too long.
B) monetary policy that was too tight for too long.
C) unexpected changes in the velocity of money.
D) declines in business and consumer conﬁdence.

Question

Quizplus · Accepted Answer

Monetarists believe that monetary policy, specifically the Federal Reserve's loose monetary policy in the early 2000s, led to a housing bubble and subsequent financial crisis when it tightened policy too late. They argue that the excessive money supply growth drove interest rates down, which led to a surge in housing demand and a subsequent bubble. When the bubble burst, it caused widespread financial distress and the ensuing recession. Therefore, the financial crisis and recession were caused largely by monetary policy that was too loose for too long, making choice A the best answer.

(Consider This) Monetarists Claim That the ﬁNancial Crisis and Resulting