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4.4.2: Market Failure in the Financial Sector
Terms in this set (12)
A sustained rise in the prices of housing and equities which takes values well above long run sustainable levels
Exists when one individual has more information than another and uses that advantage to exploit the other party
Third party effects from production and consumption for which no appropriate compensation is paid.
A disturbance to financial markets, associated typically with falling asset prices and insolvency amongst debtors and intermediaries
An agent is illiquid when he/she has large amounts of this debt coming to maturity and it is not able to roll it over
An agent is insolvent when its debt relative to its income is so high that it will not be able to pay back its debt and the interest on it
Occurs when low interest rates and a high amount of cash balances in the economy fail to stimulate aggregate demand partly through a lack of confidence.
Illegally and unfairly controlling the price or the interest rate to increase profits and exploit consumers.
When the act of insuring an event increases the likelihood that the event will happen
Activity of buying a good or service in anticipation of a change in price/market value
Lending money, usually to buy a house, to people who are risky to lend to.
Possibility that an event at the micro level of an individual bank / insurance company could trigger instability or the collapse an entire economy.
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