What are the causes and effects of the global financial and economic crisis on the global economy and the possible solutions?

Answer 1

The effects of this economic meltdown are:

1. Banks have incurred huge losses. Their earnings came down.

2. Financial institutions have gone bust or have been taken over by bigger organizations

3. The housing prices have plummeted

4. The liquidity in the financial system has come down

5. High unemployment

etc.

what is global economic crisis?

The Sub prime Mortgage Crisis is an ongoing economic problem that has become more apparent in 2008 and has resulted in reduced liquidity in the global credit market and also the banking & financial systems. This crisis has exposed the weakness in the global financial system and also the regulatory framework that is overlooking them.

Some of the reasons for this crisis are:

1. The US Real estate market crash

2. High default rates on Sub prime loans &

3. Sub prime Mortgage backed securities

A Sub prime loan is a loan that is granted to a borrower who does not qualify for loans owing to a variety of risk factors like low income level, bad credit history etc.

In general, banks giving home loans to people who couldn't afford homes. That's what started it. Lots and lots of things happened afterward.

There are many factors that cause global economic crisis. If one believes in free markets then, it is said that institutional polices that attempt to exploit the market can cause serious fluctuations on the global scale. According to most "free market" theorists, the market is an exchange between two constituents, who agree on a price without of need of an "arbitrary agent". This creates a natural supply and demand defined by their agreed price. The situation that occurs is that this model is affected by economic events such as weather, availability of resources, institutional policies and technology, which all can be either positive or negative. For the case in point, let's say that there is an arbitrary agent who decides to charge a fee for conducting an exchange for six individuals (this example could be substituted for any of the mentioned economic events uniquely affecting the price). Each of the three pairs would have a supplier and consumer. Let us also suppose that 2 out of the 3 pairs can afford to do business but one of them cannot due to this fee. This would thus create an inefficient market. On a global context, if we were to have this model to represent the sum of all markets, the 2 pairs that can afford to do business would be all functioning markets and the one that cannot would be the market failures influenced by the arbitrary agent which can be viewed as all ineffective economic policies. In a sense, a global economic crisis is the occurrence of market inefficiencies due to economic events. I hope this answers your question.

There is no cause of the global crisis there's only a effect and that's your mom