Financial Markets And Institutions - Expansionary Monetary Policy And Central Banks

Financial Markets And Institutions - Expansionary Monetary Policy And Central Banks

Evaluate these TWO comments on the merit of their arguments. See if you agree or disagree with what they say and explain why.

The comments refer to this topic - "It is argued that expansionary monetary policy of US Fed and other central banks and the resulting near zero interest rates have caused bubbles and bursts. The logic behind this argument is that near zero interest rate encourages borrowing by risk loving investors who use cheap funds to finance excessively risky projects. But once the economy gets back to normal condition, interest rates start rising and these risky investments increase systematic risk. Many financial institutions who take exposure to these projects during low rate regimes have concentrated risk that could lead to systemic risk"