The Effects Of Credit Crunch On The World Economy

n An economic event intertwined with the credit crunch of 2007 is the U.S. subprime mortgage crisis. In 2007, the subprime mortgage crisis dealt a huge economic blow to America and then had a great impact on the world economy. Although several actions were taken, the crisis still had severe, long-lasting consequences, which makes the world economy still in a slow recovery so far. The credit crunch of 2007 was triggered by several factors. Analyzing the cause of credit crunch can help us reduce the probability of it and then prevent financial crisis in the future. This essay consists of three parts. At first, it will discuss some causes of the credit crunch of 2007. Then we focus on credit risk, which is one of the most important causes, by giving a definition of it and describing how it results in credit crunch. The third part will discuss the implications of credit crunch for policy. 2.1 The credit crunch of 2007 **** The concept â€Å"credit crunch† was firstly introduced during the Great Depression of the 1990s. It is also known as credit squeeze, which refers to a reduction in the availability of loans and other types of credit at a given interest rate. In such an economic situation, banks and capital markets are reluctant to lend with a fear of bankruptcies and defaults. On the one hand, credit crunch is a result of a decrease in the value of bank capital. On the other hand, it can be viewed as a policy implemented by governments or bank regulators, under a condition ofShow MoreRelatedCredit Crunch And Its Effects On The Economy1451 Words   |  6 Pagesworld’s economy has been changing enormously in the past 10 years due to the different reasons and causes. Credit crunch in 2007 was one of the unforgettable situations which has been considerably affecting the global economy until now. 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