The Effects of Banks' Decisions on the Intensity of Recessions and Recoveries
Although banks have clear advantage in management and distribution of funds, they are also prone to mistakes, i.e. they cannot precisely foretell the future or assess the actual risk of borrowers. They may have more information about particular projects than small savers. However, they do not have perfect information. The question that I will address in this paper will attempt to look at banks decisions during economic slowdowns and expansions to see what the effects of those decisions are. Namely, does banking activity intensify the severity of a recession or does it help the economy to remain healthier than it would otherwise be? (original abstract)
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