Sample Essay

Through the Minsky economic model, one is able to understand the financial and economic history. He, Minsky, argues that financial crisis are because of accumulation of debts that arise when an economic bubble bursts. The economic bubble bursts due to over speculation without must focus. The Minsky bubble comprises o a number of events that follow each other chronologically. The events are displacement, speculation, euphoria and overtrading, surprise event, distress, revulsion and liquidation.

            Displacement occurs when the macroeconomic system suffers a shock caused by an exogenous factor. The shock could be as a result of war, bumper harvest invention of a new technology among others.  Unexpected monetary policy might cause displacement too. Displacement results to increased opportunities while it causes threats to some businesses too. When opportunities are create, the businesses with savings take advantage of the opportunities while taking advantages of other businesses. When the opportunities overcome the threats, there is a likelihood of an economic boom and the banks begin to expand the credit available for the investor. There is a lot of speculation about the increased profits and returns from investments. Banks expand credit to firms and individuals in order to feed the boom while speculating big returns. The speculation is transmitted to increased demand for goods and services or financial assets.

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