In this page we learn about How World Economic Crisis goes on and what factors that lead to an economic crisis. And also learn about causes , consequences and remedies to get out from World Economic Crisis.
What is Economics ?
Economics is the study of how society uses its limited resources. Economics is a social science that deals with the production, distribution, allocations and consumption of goods and services by individuals and businesses.
Economics focuses heavily on the four factors of productions , which are land, labor, capital, and enterprise. These are the four ingredients that make up economic activity in our world today and can each be studied individually.
Economics ranges from the very small to the very large. The study of individual decisions is called microeconomics. The study of the economy as a whole is called macroeconomics.
Macroeconomics
The branch of economics that studies the overall working of a national economy. It is more focused on the big picture and analyzing things such as growth, inflation, interest rates, unemployment, and taxes.
Microeconomics
Those studies in which how households and businesses reach decisions about savings, purchasing, competition in business, setting prices etc. It focuses at the individual level, while macroeconomics looks at the decisions that affect entire countries and society as a whole.
What is an World Economic Crisis ?
Economic crisis is a situation in which the economy of a country experiences a sudden downturn brought on by a financial crisis. An economy facing an economic crisis will most likely experience a falling in GDP growth, a drying up of liquidity and rising/falling prices due to inflation/deflation. An economic crisis can take the form of a recession or a depression. Also called real economic crisis. See also collapse, recession, depression.
Factors lead to an World Economic Crisis
Nations usually pay close attention to their economic information, which can signal economic growth or contraction based on various economic indicators. Several negative factors in an economy can signal the start of an economic crisis. Such crises can start slowly or very quickly depending on the nation’s economic strength. Larger nations may be able to stave off an economic crisis because they usually have more resources than smaller nations.
Credit Contraction
Credit contraction is an economic crisis in which individuals and businesses cannot purchase goods or services on account. Credit cards, equity lines of credit and other traditional bank loans are common credit instruments in an economy. Consumers unable to obtain credit may use personal savings or wealth to purchase goods or services.
Once consumers personal wealth decreases, spending decreases. Decreases in consumer spending can lead to a significant economic crisis because consumer spending is usually a major portion of a nation’s economy.
Banks and lenders earn income from the interest charged to consumers using credit. Financial institutions that cannot earn interest also may struggle in a tight economic environment. Lending and other business investments may decrease, adding an additional factor to an economic crisis.
Stock Market Issues
Stock markets represent a factor that can lead quickly to an economic crisis. In the United States, stock market crashes occurred in 1929, 1987 and 2001. These stock market crashes resulted in significant losses for individuals holding various equity investments. Many individuals and businesses lost their entire wealth and were unable to continue their normal way of life.
Each stock market crash created a ripple that spread to the larger national economy. Banks and investment firms with large capital investments in private companies saw this capital quickly erode.
In 1929, banks were unable to meet financial obligations, affecting individual bank accounts. In 1987 and 2001, the federal government made monetary policy changes to stave off further erosion during the economic crises.
Currency Fluctuations
Currency fluctuations can create significant economic issues. A nation’s currency often is compared to other currencies in the global economic environment, and its value also is based on current economic and monetary policies.
Nations with rampant inflation may lead to hyperinflation. Hyperinflation causes currency to lose its value and requires individuals to use copious amounts of money to purchase basic goods. International countries may sell their investments in countries with hyperinflation, and major currency sell-offs also can decrease a nation’s currency.
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