What are the major factor responsible for economic crises
Answers
Explanation:
An economic crisis impacts the majority of businesses and individuals in an economy.
An economic crisis refers to a major financial crisis in a country or across many countries that impacts the banking system, the stock market and, often, even the stability of the government. An economic crisis can occur due to many factors but it is often a combination of factors that combine
to create financial instability.
Different factor responsible for it are as follow
Liberal Lending Practices
In a growing economy with high employment rates, banks are more likely to lend to consumers and businesses with reasonable rates and liberal repayment terms. When an economy begins to contract, banks and other lending institutions will tighten up lending policies, making it difficult to borrow for home buying purposes or to start or grow a business. Liberal lending policies can tip off an economic crisis when borrowers cannot afford the terms of their loans when the economy contracts. In the 2008 economic crisis, liberal lending in the United States mortgage market found many homeowners in trouble when their teaser interest rates ended and the rate adjusted. Many individuals could no longer afford to carry their homes and foreclosures shot up, shaking the confidence of the entire United States economy.
Stock Market Bubbles
A stock market bubble occurs in a strong economy when demand for equity investments rises and the prices of stocks are driven higher than an objective valuation would dictate. With no true assets to back the lofty prices, the stock prices eventually cannot support themselves and the entire market corrects back to a reasonable valuation. When this happens across a broad spectrum of stocks, investors withdraw money out of the uncertain markets, which destabilizes them further. Farther along in the cycle, confidence will slowly return once investors believe that the stocks have hit their lowest possible point.
High Unemployment
High unemployment levels can result from an economic crisis in action or can be one of the causes of it. An economic crisis can occur when high interest rates, tight lending and a decrease in consumer spending results in companies letting go of employees to survive the economic downturn. This turns into a nasty downward spiral as unemployed consumers do not spend freely, impacting businesses further and leading to more layoffs. Increasing unemployment can also be found when companies outsource jobs to other countries. This type of unemployment is more permanent in nature and can lead to longer-term economic instability.
Natural Disaster
An environmental crisis can also spark an economic crisis. Hurricanes, widespread flooding, insect infestations and crop diseases can impact the food we eat and the prices we pay at the grocery store. Rising food prices can impact consumer spending habits and begin the downward cycle that reduces business income and results in unemployment.