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The 2008 Financial Crisis: Causes and Consequences - Research Paper Example

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The 2008 Financial Crisis: Causes and Consequences Table of Contents The 2008 Financial Crisis: Causes and Consequences 1 Table of Contents 2 Introduction 3 The study is concentrated on a detailed analysis of the 2008 financial crisis. The causes and consequences of the financial crisis during 2008 have also been discussed in the study…
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The 2008 Financial Crisis: Causes and Consequences
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The 2008 Financial Crisis: Causes and Consequences

Download file to see previous pages... The origin of inflation was also one of the major factors behind the happening of global economic crisis. Inflation can be defined as a situation in the economy, when there is a continuous hike in the price level of the products and the services and on the other hand a continuous decrease in the value of money. However, a fact should be highlighted that there should be a continuous increase and decrease in the price level and value of the money respectively (Makinen, “Inflation: Causes, Costs, and Current Status”). 3 Origins of the Financial Crisis 4 The financial crisis started showing its effect in the early 2007 in the US along with other parts of the world. The companies started hiking their prices to maintain the value of their assets. The maintenance of value became the most important task of any business entity to exist in the market during 2008. The market went down due to such an attack of devaluation of assets. The business entities in order to maintain stabilization in the market started innovating and introducing new products in the markets. However, the introduction of new products in the market does not acquire enough power to beat the effect of devaluation. Rather, it holds the risk of putting the organization deeper into instability. This is so because, when a company adopts any modifications or a complete change in the product, the expenses on the operations of the business increases which may not be recovered in an unstable economy. Moreover, the demand gradually goes on decreasing due to the decrease in the flow of money in the economy. Thus, it carries a high risk to introduce innovations with due consideration to the varying and unstable market (Baily & Et. Al., “The Origins of the Financial Crisis”). 4 During the early 2008, many companies failed to even control their own risk management procedures. They soon started losing their ability to entertain risk in the market. At the same time, due to a massive increase in prices of the products, certain firms got affected by the decrease in demand of their products and services. Besides, the flow of money in the economy decreased due to a vigorous effect of devaluation of money value, decrease in demand and supply and devaluation of assets and institutions. Subsequently, these factors as a result gave birth to inflation (Baily & Et. Al., “The Origins of the Financial Crisis”). 4 The global financial crisis affected the most at the mid of 2008. The financial institutions globally were affected due to this crisis. The stock markets all over the world started diminishing, a large number of financial institutions started winding up. As a result of such significant losses, the governments of each and every country, even in the developed nations were compelled to provide the financial packages to their financial systems. The financial packages signify that the government of a country asks each financial institution to maintain certain reserves in their account with the government. The reason behind entertaining such criteria by the government is to have a control over the money flow in the economy. The financial institutions are compelled to engage a certain deposit of their capitals or reserves with the government. Moreover, the government can increase or decrease the ratio of reserves to be deposited by the financial ...Download file to see next pagesRead More
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