Economical Crisis: Reasons & solutions
                     ECONOMICAL 
CRISIS: 
REASONS & 
SOLUTIONS
Introduction
Economic crises are complex 
events, and thus forecasting their 
occurrence is intrinsically 
problematic. Describing 
macroeconomic phenomena as the 
emerging patterns of a complex 
system, macroeconomic agent-
based models may shed some light 
on the conditions and causes that 
may lead to crises.
Source: 
www.sciencedirect.com
REASONS OF ECONOMIC 
CRISIS
Loss of 
Confidence 
in 
Investment 
and the 
Economy
Loss of confidence prompts 
consumers to stop buying and 
move into defensive mode. Panic 
sets in when a critical mass moves 
toward the exit. 
Businesses run fewer employment 
ads, and the economy adds fewer 
jobs. Retail sales slow.
Source: 
www.thebalance.com
High Interest 
Rates
Interest rates limit liquidity money 
that's available to invest when they 
rise. The Federal Reserve has been 
the biggest culprit here in the past. 
The Fed has often raised interest 
rates to protect the value of the 
dollar.
Source: 
www.thebalance.com
Stock Market 
Crash
A sudden loss of confidence in 
investing can create a subsequent 
bear market, draining capital out of 
businesses.
Source: 
www.thebalance.com
Falling 
Housing 
Prices and 
Sales
Homeowners can be forced to cut 
back on spending when they lose 
equity and can no longer take out 
second mortgages. 
This was the initial trigger that set 
off the Great Recession of 2008.
Source: 
www.thebalance.com
Manufacturing 
Orders Slow 
Down
One predictor of a recession is a 
decline in manufacturing orders. 
Orders for durable goods began 
falling in October 2006, long before 
the 2008 recession hit.
Source: 
www.thebalance.com
Wage-Price 
Controls
The imposition of wage and price 
controls has occurred many times 
in history, but it's only led to a 
recession once.
Source: 
www.thebalance.com
SOLUTIONS OF ECONOMIC 
CRISIS
Fiscal policy
Government investment in new 
infrastructure helps to stimulate 
demand and create jobs.
Income tax cuts – increasing the 
disposable income of workers, 
encouraging them to spend.
Source: 
www.economicshelp.org
Monetary 
policy 
Cutting interest rates – makes 
borrowing cheaper and should 
increase the disposable income of 
firms and households – leading to 
higher spending.
Quantitative easing – when Central 
Bank creates money and buys 
bonds to reduce bond yields
Source: 
www.economicshelp.org