What happens to the economy during the financial crisis?

The financial crisis occurs when financial markets experience sudden and serious losses, or when investors lose confidence in the financial sector or economy as a whole. In the economy during the financial crisis, people often have to deal with inflation or deflation. Lending usually becomes more restrictive, which contributes to increasing unemployment. The general weakening of the economy during the financial crisis can even lead to the leadership of political instability. The financial crisis often begins when the bank is experiencing a high number of loans failure as a result of slowing the economy after rapid growth. Banks reduce new lending to reduce additional losses, which means that businesses cannot get the loans needed to finance the producturo -tower and the expansion of the company. Businesses will cease to hire because the extension plans must be suspended, reduce existing jobs to save money, and try to build cash reserves that can balance the loss of the available credit.

Banks respond to the influence of unemployment on the economy during the financial crisis by limiting consumer lending, since increasing unemployment usually leads to a higher starting rate of loans. When the buyer becomes rare, homeowners who try to sell their homes begin to lower their desired price, which leads to deflation, because prices generally begin to fall. Declining prices lead to production slowing, because people have excess cash, but slowing production often leads to increased unemployment. In the deflationary economy during the financial crisis, the savings have increased expenditure strength, but due to the high unemployment benefits, the increasing number of people has no income.

The economy during the financial crisis may also experience rapid inflation because investors will lose confidence in the government and its ability to cover their debt obligations by increasing taxes. Investors demand a higher return on government bonds, which increases interest rates on other types of investmentand commodities. Rising prices mean that consumers have less expenditure energy and spend a higher percentage of their income on basic needs, such as food and housing, rather than luxury items.

Sometimes the financial crisis can affect the whole world because the national economies are connected because of the import and export of goods. The nations lacking liquidity reduce imports, which means that other business partners lose income and have to reduce expenses. The financial crisis may have a domino effect in the free market economy, and only countries with isolationist economic policies avoid the harmful effects of the global economic crisis.