Credit demand, as well as, credit supply have been mentioned as primary contributing factors to economic decline. Credit supply culminates to increasing production costs, as well as, causing the short-run shifts in the aggregate supplies. This credit supply will as a result cause high inflation and lowering of the GDP leading to economic decline. Credit demand, on the other hand, leads to decreases in the bank lending consequently leading to low investments because of the higher interest rates brought about by the high credit demand. This would adversely affect the performance of the economy because of low investment levels.
The story of recession cannot be completely told without addressing the role of house owners and householders in their contribution towards the occurrence of recession. In fact, several people who bought homes before should not have qualified except for the unscrupulous dealers and banks in the country. Basically, the sector has played a tremendous role in cutting the incomes of the populations because of the increasing purchases of housing facilities in the country. (Atif & Sufi, 2010, P. 2) Demand for more credit by the house owners and the house holders would thus lead to skyrocketing of bank interest rates. In turn, this can lead to depression because the production of the housing units would not keep up with the existing demand in the market. It is thus necessary for the policy makers to control this sector to limit depression.
Lastly, microeconomic data can largely assist in the comprehension of microeconomic fluctuations, as well as, cycles. This is basically because it culminates in real-time analyses for teasing out the possible causes of various microeconomic patterns. (Atif & Sufi, 2010, P. 5) In this comprehension, the macroeconomic data would detect the existing relationship between income growth rates and the house pricing before their explosion. In conclusion, therefore, the above article has presented a discussion on credit demand and supply, roles of the house holders and the home owners and lastly the significance of microeconomic data.
REFERENCES
Atif, M. & Sufi, A. (2010). The Great Recession: Lessons from Microeconomic Data. American Economic Review, 100(2), 51-56.
