A possible sequence for the three stages of a financial crisis in an advanced economy might be ________ leads to ________ leads to ________.
A) asset price declines; banking crises; unanticipated decline in price level
B) unanticipated decline in price level; banking crises; increase in interest rates
C) banking crises; increase in interest rates; unanticipated decline in price level
D) banking crises; increase in uncertainty; increase in interest rates

Question

Quizplus · Accepted Answer

The three stages of a financial crisis in an advanced economy usually start with asset price declines, which then lead to banking crises, and finally, an unanticipated decline in the price level. This is a well-known sequence observed in previous financial crises such as the Great Depression of the 1930s and the Global Financial Crisis of 2008. Option A correctly represents this sequence. The other options either miss a crucial stage or present an incorrect order of events.

A Possible Sequence for the Three Stages of a Financial