Global financial and economic crisis

Document Type:Case Study

Subject Area:Economics

Document 1

The United States is the world’s largest economy nation and if measures are not put in place to support the economy of the country, then the whole world might end up in a very bad situation economically. Other nations strive to formulate polices which wills help them deal with internal economic status in their countries. This will in turn help in ensuring that the global state of economic stability is manageable. If measures are not put in place then a worst economic status will be witnessed on the world. Financial institution has to regulate the rate at which they do businesses to avoid loss of currency leading to a bad economic situation on the globe (Mota, 2012). This contributed very much in the financial crisis which was to affect the global economic status.

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The economic crisis was also fueled by the stakeholders having no clear plans to prevent such situations in the United States economy. There was no preparedness that would be used to prevent such a situation form affecting the United States’ economy (Lybeck, 2011). The stakeholders had relaxed and out looked any possibilities of a financial crisis in the United States economy. Failure to regulate laws on mortgage the government was also another cause leading to the 2007 crisis. One of the plans included the intervention of the treasury, Federal Reserve and the exchange commission in the crisis (Lybeck, 2011). This saw investments being insured and the mortgage crisis being solved by termination of short selling of financial stocks. China also reduced its interest rates other nations reduced their overnight rates allowing their commercial banks to borrow from the central banks of the nations.

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The European nations also had plans to deal with the crisis which included plans by some nations to review their taxation policy to support some of the most affected sectors in the economy. The action by the countries across the globe brought to an end the global financial crisis with nations coming into agreement about how they could contain the situation. Come banks will tent to borrow so much that they will be unable to pay their dues (Lybeck, 2011). This can make it hard for the central bank of these nations during a financial crisis. This challenge affects both the developed and developing countries and can have negative impact on the economy of such countries. Another challenge to the global economy is unpreparedness by most countries to deal with issues of economic crisis once they occur.

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Some countries are always caught unaware by economic crisis in their countries (Mota, 2012). the global economy will in return suffer a lot from this ignorance and this could be a global crisis which would be solved (Kirshner, 2014). Countries should at least take warnings from other nations to ensure that they effectively deal with any economic threat. Overdependence in some countries is another challenge facing the global economy. Some nations will tent to depend so much on other nations for their economic growth. This is not a good situation as it will have very serious effects on such countries in case there is an economic crisis in the countries they depend on. It is the duty of the concerned stakeholders to ensure that they are prepared to deal with any economy crisis if it arises.

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