How do the adjustments affect the sizes of booms

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Reference no: EM131221672

The riskiness of banks' assets fluctuates over time. For example, default risk on loans rises and falls.

a. How are banks likely to adjust their equity ratios (their ratios of capital to assets) when the riskiness of assets changes? Explain.

b. How do the adjustments in part (a) affect the sizes of booms and recessions? Explain.

Reference no: EM131221672

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