Empirical evidence points to the fact that financial crises:
A) are newsworthy but have no impact on economic growth.
B) have a negative impact on economic growth only for the year of the crisis.
C) have a negative impact on economic growth for years.
D) can have a positive impact on economic growth as weak borrowers are weeded out.

Question

Quizplus · Accepted Answer

Empirical evidence suggests that financial crises have a negative impact on economic growth for several years, even after the initial shock of the crisis subsides. This is because they often lead to a reduction in investment and consumption and can also damage confidence and trust in the financial system. Therefore, option C is the correct choice. Options A and B are incorrect as financial crises do have an impact on economic growth, and this impact typically lasts longer than just one year. Option D is also not accurate in general; while weak borrowers may be removed from the market during a crisis, the overall effect is still negative due to the destabilizing effects of such events.

Empirical Evidence Points to the Fact That Financial Crises