Answer –The U.S economy faced the eight month long recession period which was worsened by the terrific attack of the terrorists on September 11. The basic reason behind the recession was that there was too much increase in the money supply in the economy because central bank had reduced the interest rate. It motivated the investors to borrow high amount for more investment particularly in the real estate sector in the economy. Increase in money supply in the economy helped in easing out the credit access which encourages people to take loans particularly home loans. This leads to rise in the demand for homes and the prices of real estate had shoot up.Particularly the mortgage lenders offered too much “creative financing” to lot of risky borrowers who did not had good credit background as well. They allowed for adjustable rate mortgages which took the loans on unpaid interest on the principal amount of home loans. They were speculating that the price of the real estate sector will increase a lot giving them benefit in long run. But in the long run, people were not able to pay back their loan which made the banking sector bankrupt. The whole U.S shook down and there was drastic fall in the money supply in the country which resulted into the recessionary situation. The main blame went onto the mortgage brokers and investment firms which were offering high loans to even high risk people. Critics also targeted mortgage giants Fannie Mae and Freddie Mac, which encouraged loose lending standards by buying or guaranteeing hundreds of billions of risky loans. (Bianco, 2008) Solution Answer –The U.S economy faced the eight month long recession period which was worsened by the terrific attack of the terrorists on September 11. The basic reason behind the recession was that there was too much increase in the money supply in the economy because central bank had reduced the interest rate. It motivated the investors to borrow high amount for more investment particularly in the real estate sector in the economy. Increase in money supply in the economy helped in easing out the credit access which encourages people to take loans particularly home loans. This leads to rise in the demand for homes and the prices of real estate had shoot up.Particularly the mortgage lenders offered too much “creative financing” to lot of risky borrowers who did not had good credit background as well. They allowed for adjustable rate mortgages which took the loans on unpaid interest on the principal amount of home loans. They were speculating that the price of the real estate sector will increase a lot giving them benefit in long run. But in the long run, people were not able to pay back their loan which made the banking sector bankrupt. The whole U.S shook down and there was drastic fall in the money supply in the country which resulted into the recessionary situation. The main blame went onto the mortgage brokers and investment firms which were offering high loans to even high r.

1. Answer –The U.S economy faced the eight month long recession period which was worsened by
the terrific attack of the terrorists on September 11. The basic reason behind the recession was
that there was too much increase in the money supply in the economy because central bank had
reduced the interest rate. It motivated the investors to borrow high amount for more investment
particularly in the real estate sector in the economy. Increase in money supply in the economy
helped in easing out the credit access which encourages people to take loans particularly home
loans. This leads to rise in the demand for homes and the prices of real estate had shoot
up.Particularly the mortgage lenders offered too much “creative financing” to lot of risky
borrowers who did not had good credit background as well. They allowed for adjustable rate
mortgages which took the loans on unpaid interest on the principal amount of home loans. They
were speculating that the price of the real estate sector will increase a lot giving them benefit in
long run. But in the long run, people were not able to pay back their loan which made the
banking sector bankrupt. The whole U.S shook down and there was drastic fall in the money
supply in the country which resulted into the recessionary situation. The main blame went onto
the mortgage brokers and investment firms which were offering high loans to even high risk
people. Critics also targeted mortgage giants Fannie Mae and Freddie Mac, which encouraged
loose lending standards by buying or guaranteeing hundreds of billions of risky loans. (Bianco,
2008)
Solution
Answer –The U.S economy faced the eight month long recession period which was worsened by
the terrific attack of the terrorists on September 11. The basic reason behind the recession was
that there was too much increase in the money supply in the economy because central bank had
reduced the interest rate. It motivated the investors to borrow high amount for more investment
particularly in the real estate sector in the economy. Increase in money supply in the economy
helped in easing out the credit access which encourages people to take loans particularly home
loans. This leads to rise in the demand for homes and the prices of real estate had shoot
up.Particularly the mortgage lenders offered too much “creative financing” to lot of risky
borrowers who did not had good credit background as well. They allowed for adjustable rate
mortgages which took the loans on unpaid interest on the principal amount of home loans. They
were speculating that the price of the real estate sector will increase a lot giving them benefit in
long run. But in the long run, people were not able to pay back their loan which made the
banking sector bankrupt. The whole U.S shook down and there was drastic fall in the money
supply in the country which resulted into the recessionary situation. The main blame went onto

2. the mortgage brokers and investment firms which were offering high loans to even high risk
people. Critics also targeted mortgage giants Fannie Mae and Freddie Mac, which encouraged
loose lending standards by buying or guaranteeing hundreds of billions of risky loans. (Bianco,
2008)