Question

What change in monetary policy could eventually cause overborrowing and overinvestment?

Answer 1

Answer:

The change in monetary policy that could eventually cause overborrowing and overinvestment would be the increase of monetary supply.

Explanation:

The increase in the money supply is the monetary policy that makes a greater amount of money available to individuals and businesses, thus increasing the liquid circulation. In this way, both people and companies have more money, thereby increasing their consumption and energizing the economy.

But this policy can be counterproductive if the offer is increased through indiscriminate issuance, as this situation would generate inflation.

In addition, the greater amount of money available can lead to credit bubbles, because if banks have more money they give more credits, people get debts with them. But if the money supply is then reduced and people have less money available, they will not be able to pay their debts, thus starting a credit bubble like the one that happened in 2008.

Answer 2

Increase in money supply :)