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Chapter 12 The Financial Crisis of 2007–2008

Chapter Objectives

By the end of this chapter, students should be able to:

  1. Define financial crisis and differentiate between systemic and nonsystemic crises.
  2. Describe a generic asset bubble.
  3. Define leverage and explain its role in asset bubble formation.
  4. Explain why bubbles burst, causing financial panics.
  5. Define and explain the importance of lender of last resort.
  6. Define and explain the importance of bailouts.
  7. Narrate the causes and consequences of the financial crisis that began in 2007.