The government of Swoonland is trying to understand the country's financial crisis.Which of the following could have been the underlying macroeconomic cause of Swoonland's financial crises?

Question

Quizplus · Accepted Answer

Increases in stock and property prices can lead to an unsustainable rise in wealth, leading to the creation of financial bubbles that eventually burst, causing a financial crisis. This was evident in the 2008 global financial crisis, where the US housing market bubble led to widespread financial turmoil.

Other choices are unlikely to have directly contributed to a financial crisis. Low inflation rates (A) and increases in the value of domestic currency (E) are usually indicators of a stable economy, while a narrowing current account deficit (B) and decline in domestic borrowing (D) could indicate a slowdown in economic activity, but not necessarily a financial crisis.

The Government of Swoonland Is Trying to Understand the Country's