Global Financial Crisis: The Economic Crisis and its Effects - Essay Example

Economic theory: According to Andy Kilmister (2008), in the years leading up to the economic crisis that began in 2008, the global economy showed strong Economic Growth (EG). Over 2001-07, real-world gross domestic product (GDP) grew by more than 3 percent a year, exceeding annual growth of 2.7 percent during the 1990s. The large influx of money into the Western financial system enlarged the “supply of funds available for loans and investment relative to the profitable opportunities available” (p. 67). This consequence, combined with “insufficient government financial regulation and supervision, resulted in investors and banks making riskier loans, such as for subprime home mortgages and mortgage refinancing in the United States” (Andy Kilmister, 2008).

Interest in the article: The world financial crisis is a recent world effect, which affected almost all countries in the world, Andy Kilmister (2008). It impresses me most because, to come out of the crisis, economic knowledge was needed to salvage the situation. Economic theory played a major role, “for instance the use of interest rates to regulate the cost of borrowing from financial sectors” (p. 23).  Also, the use of fiscal policies, for instance, stimulus packages in the financial and non-financial sectors (Andy Kilmister, 2008).