#1
What is the primary cause of an economic recession?
Decline in business investment
ExplanationDecreased business investment leads to economic downturns.
#2
Which economic indicator is often considered a precursor to a financial crisis?
Stock market volatility
ExplanationHigh stock market volatility can signal impending financial instability.
#3
In the context of economic crises, what does the term 'bank run' refer to?
A situation where depositors rush to withdraw funds from a bank
ExplanationDepositors panic and withdraw funds from banks, leading to instability.
#4
During a currency crisis, what is a common government response to stabilize the exchange rate?
Adopting a fixed exchange rate regime
ExplanationGovernments fix exchange rates to restore stability during currency crises.
#5
What role do credit rating agencies play in economic crises?
They provide independent assessments of the creditworthiness of borrowers
ExplanationCredit rating agencies assess borrower creditworthiness, affecting market confidence.
#6
During an economic crisis, what is the role of central banks in monetary policy?
Lower interest rates to encourage spending
ExplanationCentral banks lower interest rates to boost spending and stimulate the economy.
#7
How can fiscal policy be used as a response to an economic downturn?
Increase government spending and cut taxes
ExplanationGovernments increase spending and cut taxes to inject money into the economy during downturns.
#8
What is the 'Liquidity Trap' in the context of economic crises?
A state where individuals hoard cash, and monetary policy becomes ineffective
ExplanationPeople hoard cash, making monetary policy ineffective in stimulating the economy.
#9
What is the Triffin Dilemma, and how does it relate to economic crises?
A theory suggesting that trade imbalances can lead to a lack of global liquidity
ExplanationTrade imbalances may cause a shortage of global currency reserves, contributing to crises.
#10
How does a debt-deflation spiral contribute to economic downturns?
By causing a decline in aggregate demand and a deflationary spiral
ExplanationDebt-deflation reduces demand, leading to further economic decline.