In 1981-1983, the world economy suffered a steep recession. Naturally, the fall in industrial countries' aggregate demand had a direct negative impact on the developing countries. What other mechanism was an even more important contributor to this event?

Question

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The collapse in primary commodity prices and the immediate, large rise in the interest burden that debtors had to pay was the main mechanism that contributed to the steep recession in 1981-1983. This created a burden on countries that relied on commodity exports and increased the amount of debt they had to pay, ultimately leading to an economic crisis. The other options, such as inflation, currency depreciation, and defaulting credit, may have played a role, but were not the primary contributors.

In 1981-1983, the World Economy Suffered a Steep Recession