Minsky theory
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MONEY AND FINANCIAL STABILITY PAPERS
-"The financial instability hypothesis", Minsky
1- What is the economic problem?
3- What are the three types of financial structures?
4- Big government may be good but also bad, why?
5- What are the two theorems of the financial instability hypothesis?
6- Does the FIH rely on external shock to generate instability?
-"On the non-neutrality of money" Minsky
1- Each theory uses special concepts to derive a conclusion regarding the neutrality or non-neutrality of money. In Minsky theory, what are the concepts that replace: rational expectation? Asymmetry of information? Aggregation of individual agents? Independence of real and monetary variables?
2- What is the main consequence of 1- regarding the neutrality of money: can money ever be neutral? Explain.
3- What are the three types of financial structures used to measure financial fragility?
4- Can banks be in a hedge finance position? Explain.
5- What is the meaning of 'robustness'?
6- Why is the capitalist economic system inherently unstable?
7- Why does a free market economy require a big government?
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Solution Summary
Financial instability regarding the minsky theory is summoned and discussed in the solution.
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Answers:
1- What is the economic problem?
The financial instability hypothesis characterizes the economy as a capitalist economy with expensive capital assets and a complex, sophisticated financial system. The economic problem is simply identified as the capital development of the economy.
3- What are the three types of financial structures?
Minsky distinguishes three types of financial structures, namely, hedge, speculative, and Ponzi finance. These are used to indicate the relative difficulties that economic units have in repaying debt. The classifications revolve around the relationship between cash receipts due to normal operations and cash payment liabilities due to debt. A hedge firm is able to meet all cash payment liabilities with cash receipts. A speculative firm, however, has difficulty meeting some payment liabilities, usually those coming due in the short term. Typically, a speculative firm will have to refinance some short-term liabilities. A Ponzi firm has the most difficulties; it must borrow to meet current interest payments. Thus a Ponzi firm is continually increasing its outstanding debt.
4- Big government may be good but also bad, why?
With the help of Big Government stability of the economy can be maintained more successfully. The deficit of a big government will have three effects. The ...
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