Economic crisis

What is an economic crisis?

The economic crisis is called situation in which stationary economic changes are presented negatively. The effects of this crisis are often called economic recession, contraction or depression.

This period, characterized by a negative economy, occurs for various reasons, including the corruption, a maladministration, waste or bad investments.

Characteristics of an economic crisis

The most outstanding characteristics of an economic crisis are the following:

• Usually occur in a state and affect organizations and families.
• Provokes shortage in production and consumption of goods and services.
• It negatively influences the quality of life of people involved.
• Generate instability in the markets, which makes national and international transactions difficult.
• Provokes unemployment and poverty.

Types of economic crises

An economic crisis can be divided into the following types:

• Supply crisis: economic crisis that happens when there are problems in supply, due to various factors, and the total demanded by individuals cannot be filled.
• Crisis in demand: economic crisis that happens when it is not possible to commercialize all the products that are in stock and there is a stagnation in the market.
• Energy crisis: by not being able to economically access energy or fuel sources to carry out productive tasks, the high price of energy is transferred to daily consumption products and causes inflation, which generates an economic crisis.
• Financial crisis: When there is a lack of confidence in the financial sector and the value in the stock market collapses, a severe economic crisis occurs called the financial crisis.
• Currency crisis: When a country cannot defend the value of its currency against foreign currencies, a devaluation occurs.

Causes and consequences of an economic crisis

Causes

When analyzing the various causes that can cause an economic crisis, we find the main factor mismanagement of economic policy.

However, some factors outside of the administration, for example a social or natural catastrophe, can cause economic crisis, because they interrupt the common economic performance of the entity in question.

Finally, crises can be triggered by a increase in the price of raw material used for the production of goods, for example oil. This increase generates, in turn, a rise in commodity prices, causing high inflation.

Consequences

The main consequences of an economic crisis are the following:

• Increase in the informal economy.
• The obligatory diversification of companies leads to mass layoffs, that increase the unemployment rate.
• Organizations and transnational companies emigrate towards more profitable markets, leading to job losses.
• The products obtained by smuggling they are marketed faster as they are cheaper.
• The poverty increases and the class difference becomes more acute.

Example of economic crisis

Below are exposed 3 examples of economic crises that have happened in the world:

• The 1929 crisisCalled the "Great Depression," it was a financial crisis caused by the crash of the US stock market, which led to several devastating consequences.
• The 2008 economic crisis It was also a financial crisis caused by the collapse in the US housing bubble, which caused a collapse in the stock market and affected various countries around the world.
• The economic crisis that Venezuela is going through It is an example of a crisis in the supply of medicines and food, which causes an economic depression. In turn, this country is facing a financial and currency crisis that generates inflation.