Name Free Market Economy and Financial Crisis Economists believe that the deregulations of 1980s are the major root causes for the recent financial crisis which is likely to bring an end to free market economics. Reagan administration initiated liberalization, which brought about breakdowns in series due to which the government intervened and ultimately the structure destroyed the whole financial system…
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The companies had come to this point of crisis because free market had allowed them to make investments due to which the institutions were posed to risks. Millions of people in America lost their jobs and had their savings bushed. A number of factors have been blamed for this crisis but economists believe that free market is the very basic factor amongst all. Nobel laureate Joseph Stiglitz wrote in his book Freefall that market fundamentalists and deregulators are responsible for the mess. The situation showed that free-market economists failed and market fundamentalists were responsible for the economic crunch (Sorman 2010). The economy of United States of America witnessed only a few minor recessions each for a short period of time. Those recessions did not stir the economy enough to cause economists to develop a well descriptive recession model. With no major recessions over a long time, the economists tend to believe that the crisis may not happen. The model derived by free market economists was running a healthy economy from 80s to 2008 making economists believe that the model may not turn the situation upside down (Sorman 2010). The free market economists argue that it is the recession that prompted the financial crisis and not the other way around. Economists believe that recession began in 2007 when consumer spending decreased, overdue borrowing increased and lack of interest of homeowners in their mortgaged houses increased. They claim that the failure of financial derivatives were not the cause of financial turmoil as they were helping in the stabilization of the economy. Economists assume that due to a sudden economic downfall government faced pressure from political and non political forces to take immediate steps. This led to government spending and its intervention in the scenario which seemed quite logical at that time. The situation worsened with new public debts and regulations which stumbled upon the recovery of the economy (Sorman 2010; Bordo et al 2010). The economy could be recoiled in a quicker way if government had allowed enterprises to survive on their own by dealing with the crisis with an astute strategic approach. It is also believed that the financial turmoil was brought about by the recession but the initial slump was the result of energy cost as well. The US expenditure of energy as expressed in percentage of total spending had droppedfrom 8 to 5 percent between 1979 and 2004. The price of gasoline had hit $4 per gallon by June 2008, representing a sharp shift in energy share of total spending back to 7 per cent. The shift was due to the increased demand from evolving economies like China and India which soared up the prices. The price grabbed attention as the spending pattern showing a considerable upward movement was an indication of disruption. The unit sales of light truck curtailed by 23 per cent in the second quarter of 2008 in comparison to the preceding year’s 2nd quarter.The auto manufacturing industry cut over 125,000 jobs during the same period. The energy prices affected transportation and hence the housing sector as the houses in the suburban region lost their value and attraction. Failure of the mortgage market came up as another blow in 2007, prior to the financial cri
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This phase of an economy is also referred to as slumping economy which further results in an economic recession. This is an unwanted situation by all the countries in the world as it can have dampening impacts upon the country. Economic crisis has resulted due to a number of reasons.
Introduction 3 2) Types of Financial Crisis 3 3) Causes of Financial Crisis 7 4) Prevent Financial Crisis 9 4) Conclusions 10 References 11 1. Introduction Financial crisis is a term used to identify events and situations where an entity such as a bank, financial institutions, and the stock market will suddenly see a devaluation of their assets.
Self-interest applies to the needs of both seller and buyer in a free market. This means that the buyer has the right and desire to purchase preferable goods or services at the lowest or affordable prices. The sellers have the freedom to make profits by setting their own positive prices on the goods and services they prefer to sell.
This essay primarily focuses on the identification of the distinctive features of two most common economic system in the world. Free market is an economic system that is determined by the price mechanism. A mixed economy is a combination of a free market and planned economies. Free market economy is deemed more effective compared to a mixed type.
The free market economy is well discussed in the following paragraphs.
A free market economy is the type of economy(Slavin, 1989) in which the resources are allocated based on the basic economic law of supply and the demand for them. But reality, this is mainly a theoretical concept because we all know that in every country ,including capitalist ones, there are import restrictions or quotas established to protect the countries' local competitors.
no real examples of a completely free economy in the world and no real instances of where an economy is completely controlled by the government (Chomsky, 1996). Therefore, the quest to gain a right answer to the question demands that we look at particular situations i.e. the
Generally, a free market financial system is a situation whereby the financial market is largely run by the forces of supply and demand with no governmental policy intervention. On the other hand, a regulated financial system refers to a system in which the government controls
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