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Essay / Research Paper Abstract
This 7 page paper is written in two parts. The first paper of the paper looks at the credit crunch in the UK during 2008 and considers how the circular flow diagram can be used to explain its' occurrence. The second part of the paper looks at the differences between the consumer credit in the UK and Germany. The bibliography cites 5 sources.
Page Count:
7 pages (~225 words per page)
File: TS14_TEcreditc1.rtf
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Unformatted sample text from the term paper:
reasons underlying the current credit crunch in the UK manifold, as no single reason alone will explain what is occurring, unlike in the US where it is blamed on the
way in which the sub-prime lending market was managed and the impact of rising payments. In the UK there have been issues with sub-prime lending, but the influences are more
subtle as there was not similar irresponsible lending to the same level, but the trigger can be seen as a similar phenomenon, with increasing interest rates making loan repayments more
difficult and increasing the level of defaults which are being observed. The lack of funding to spend, either to service debt, or due to serving debt has a knock on
impact on other areas of the economy, less disposable income mean less spending, and as house prices cool due to lower demand levels the security levels of the lenders come
under scrutiny, as asset values fall and their adequacy changes. As banks see increasing default rates they have less funds to lend and are likely to tighten their criteria for
lending, making it hard for borrowers to borrow money and further depressing demand. These are all cyclic influences and can be appreciated when using the circular flow diagram. This also
helps to demonstrate the long range impacts and diverse influences. In any economy the funds will circulate, being earned and spent, this
is known as the circular flow of income. When looking at the model it is important to realize that this is very simplified, but even so this is a good
basis to understanding how income flows between companies, households, and the way that this is impacted and will impact on government and financial sectors as well as the forgiven sectors.
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