What is Economic Crisis? What are the Causes of it?

When a country experiences a sudden decline in various aspects of its economy, including its GDP, liquidity of its currency, and its overall inflation/deflation rates, crises take place. A country experiencing an economic crisis may also face recession and depression in the longer run. A crisis is caused by the inability of a country to produce enough to fulfil its daily needs. Industries, business sector, and service sector experience huge downturns. An economic crisis may include:

  • The high unemployment rate which decreases the amount of efficient production in the market.
  • Banks collapse.
  • National income rate declines as people don’t have jobs to do.
  • Inflation rates hurt the standard of living of people.
  • Trade slows down, discouraging the foreign capital inflow.

History indicates several events like the great depression of 1929, 1970s stagflation, 1981’s great recession, and 1989 saving and loan crisis as well as 9/11 attacks in 2001, that caused economic crisis worldwide.

Economic crises may also occur due to natural disasters and human-made disasters as well. People lose their everyday living and disruptive changes to normal activities slow down the working of the economy. During an economic crisis, countries seek help from other countries in the form of debt which is obviously not a sustainable solution to the problems.

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