Economic crisis

economic-dictionary

An economic crisis is a period in which an economy faces difficulties for a long time.

In other words, an economic crisis is the part of an economic cycle in which there is a considerable slowdown in the economy. In other words, it would be an intermediate point between a recession and an economic depression.

At the level of production and consumption, it is observable that an economic crisis affects all economic agents equally during this contraction phase of the cycle.

Crises are usually identified through changes in economic variables, since the production of goods and services by companies and their consumption by individuals are diminished by the economic situation.

Economic crises also have two outstanding characteristics: the instability that they imply in the markets and the consequences that they unleash in the sectors in which it appears initially and in the rest of the system later. Subsequently, the first effect caused is the decrease or deterioration of the commercial activities that exist in them.

Furthermore, it is important to note that economic crises can be isolated, focused on a sector, on a national economic system, or they can spread to a more global level as seen in the subprime crisis that affected the world economy since 2008.

The main economic indicators such as employment levels or gross domestic product (GDP) indicate during a crisis an unfavorable or slowdown situation for economic actors of different types.

Types of economic crises

The main types of economic crises that we can highlight are:

  • Financial crisis.
  • Debt crisis.
  • Economic bubble.
  • Balance of payments crisis.
  • Currency crisis.
  • Banking crisis.

When GDP contracts for at least two consecutive quarters, what is known as an economic recession occurs. If it is prolonged in time, we would already speak of an economic crisis. Then, if these shocks to the economy are deep and last longer, we face an economic depression.

Important fluctuations in interest rates, misapplication of different economic policies in a territory, currency devaluation or the destruction of jobs are some of the most common starting points with which an economic crisis can be identified and classified.

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