Question

In response to an asset-price bubble, macroprudential regulation appears to be the right tool. What is macroprudential regulation? A) Increasing the federal funds rate across the macroeconomy B) The use of tax incentives to capture some of the gains from bubbles C) Regulatory policy to affect what is happening in credit markets in the aggregate D) None of the above is correct.

Answer 1

Answer: C. Regulatory policy to affect what is happening in credit markets to the aggregate.

Explanation: Macroprudential regulation refers to a financial approach aimed at mitigating the risk and exposure of the financial system by analysis the health and vulnerability of financial institutions.

Macroprudential regulations employ the use of market data, macroeconomics and Macroprudential tools including interest rate, growth rate, liquidity ratio, cap on loan-to-value ratio, debt-to-income ratio, reserve requirement to control capital flow and so on.

Answer 2

The correct answer is C) Regulatory policy to affect what is happening in credit markets in the aggregate.

Step-by-step explanation:

The term macroprudential regulation is characterized by the focus on financial regulation aimed at mitigating the risk of the financial system (or systemic risk) as a whole. After the financial crisis, at the end of the 2000s, there was a growing consensus among policy makers and economic researchers about the need to reorient the regulatory framework towards a macroprudential perspective.