Economic Crisis Definition: We explain what an economic crisis is, its characteristics, and the causes of this phase. We also explain its consequences and some examples. Please read other MTV articles for more information. If you share it, it will be of little help to us.
What is an economic crisis?
An economic crisis is a specific phase of an economic cycle characterized by negative effects, such as recession, contraction, or economic depression, which means that the flow of money begins to become scarce.
Economic crises are a frequent phenomenon in contemporary societies, especially those belonging to the so-called Third World, whose industrial and economic foundations are not always very solid or depend on the market price of exported raw materials, for example. Must Read About Solar System Once.
In any case, in today’s interconnected world, the global economy often experiences fluctuations and setbacks in the face of unforeseen events or regional failures that destabilize the financial system as a whole.
This can occur in various magnitudes and often causes social, property, and even political damage, as it is a major source of unrest among populations, especially when combated with unpopular savings measures.
Types of Economic Crisis
Depending on the nature of the crisis, we can identify various types of economic crises, such as:
- Agricultural crisis: Caused by climatic fluctuations and other phenomena that affect the performance of agricultural production, reducing the amount of food produced to meet constant demand.
- Supply crises: Those that result from unforeseen events that disrupt the distribution chain, such as natural disasters, prolonged strikes, or border closures.
- Supply crises: Those in which the supply of a good or service is insufficient to meet current demand, causing its price to rise excessively. This immediately impacts the economic capacity of consumers, who must sacrifice other things to continue consuming. Energy crises are often of this type.
- Demand crises: Caused by excess supply or a drop in demand, which unbalances the economic cycle and causes replacement costs for sellers and producers to fall.
Characteristics of an economic crisis
Economic crises are characterized by prolonged disruptions to the functioning of the economic system, negatively impacting the quality of life and other social and political areas.
In addition, they have two important characteristics: market instability, which makes it difficult to predict the course of action and, therefore, leads to untimely and risky actions, which can further contribute to the crisis; and on the other hand, the eventual transmission of said instability from a specific sector or geography (isolated) to the rest of the systems or at least to the surrounding ones (centered), if it is too prolonged in time. Must Read About Planet Once.
Causes of an Economic Crisis
Among the most common causes of economic crises are:
- Bad economic policies. The flawed or erroneous implementation of economic policies by governments can ignite the fuse of a local economic crisis.
- Natural, social, or political disasters, such as earthquakes, revolutions, or wars, which disrupt normal economic performance and alter existing demand.
- Fluctuations in the price of raw materials, such as oil, whose fluctuations directly impact consumer and producer countries, sometimes abruptly alternating between periods of prosperity and recession.
Consequences of an Economic Crisis
The consequences of economic crises are always negative and tend to be the following:
- Economic slowdown, contraction, or depression. Depending on the severity of the crisis, the economy may slow down, regress, or plunge into the depths, taking years to recover.
- Social impact. Crises often jeopardize social and cultural plans, leading to adjustments and reducing the population’s quality of life.
- Political impact. Crises are confronted with highly unpopular cuts and tariff increases, which lead to protests and strikes that can politically destabilize entire countries.
- Poverty. Crises primarily affect the socioeconomically weakest, increasing poverty and, in some cases, leading to extreme poverty.
Economic Crisis of 1929
In 1929, there was a major global economic crisis known as the Crash of ’29 or the Great Depression. It originated in the United States, a result of the fall of Wall Street stock market bonds known as the “Crash of ’29” or “Black Tuesday,” and quickly spread to countries around the world, causing a decline in national income, tax revenues, corporate profits, and prices in general.
This resulted in unemployment rising by 25% in the United States and by 33% in some countries, in addition to a decline in international trade of 50% to 66%. Must Read About Anger Once.
Other examples of economic crises
Examples of economic crises abound, for example:
- The oil crisis of the 1970s. As a result of instability in crude oil prices, the global economy suffered between 1973-74 and 1978-79.
- The crisis in Spain in 1993. As a result of the implementation of economic measures that did not understand the country’s own cycles, everything was bet on a temporary boom, and the cycle brought with it a deficit.
- The crisis in Chavista Venezuela. As a result of poor economic planning for a decade and a half, this once wealthy South American country has faced increasing food shortages and unstoppable hyperinflation since around 2013.
