Which of the following may increase the probability of a financial crisis?
A)a sharp unexpected rise in interest rates
B)unexpected decreases in the overall level of prices
C)a fall in stock values
D)All of the above are correct.

Question

Quizplus · Accepted Answer

All of the given options, a sharp unexpected rise in interest rates, unexpected decreases in the overall level of prices, and a fall in stock values, can trigger financial crises. An unexpected rise in interest rates can lead to a decrease in borrowing and investment activities, thereby impacting the overall economic growth. Conversely, unexpected decreases in the overall level of prices may lead to a deflationary spiral, causing companies to reduce spending and investment, leading to economic contraction. Similarly, a fall in stock values can lead to a financial crisis, as it may cause investors to pull out of the market, leading to a further decline in stock prices and financial instability.

Which of the Following May Increase the Probability of a Financial