Summary: Bursting Of The Housing Bubble

Bursting of the housing bubble led to the financial crisis started in 2006. To change these negative occurrence governments needed to have a proven monetary solution to mitigate the negative consequences and finally overcome this crisis. To achieve it, this is essential that the central bank and other interaction groups control the monetary base. First of all it is important to make sure that increases or decrease in the money supply which includes checkable deposits, M2—M1 plus time deposits and retail money market deposit accounts, is managed effectively to avert financial panic in the economy (Wright & Quadrini, 2009). Additionally, independent central banks should be given a narrow mandate of stabilizing price because mandates that are