Financial Implosion

Readers Question: What do people mean by countries/society/financial implosion? Financial implosion implies a serious financial crisis where a country experiences a severe economic and financial crisis. The concept of implosion suggests that a crisis in one part of the economy would have a knock on effects to other parts as well – leading to a significant decline in living standards and creating a serious of economic problems such as inflation, unemployment and rapid decline in living standards. A financial implosion could come in various forms. For example: 1. Sovereign debt crisis….

World Financial Crisis AD/AS diagram

World Financial Crisis AD/AS diagram

Readers Question: how to illustrate the world financial crisis by using the graphs of aggregate demand and aggregate supply? The financial crisis has essentially caused an unprecedented fall in aggregate demand. Aggregate demand has fallen because: Bank lending decreased due to the credit crisis and shortage of bank funds. The shortage of bank lending has reduced investment and consumers spending (both components of AD) Falling house prices. The credit crisis has reduced the availability of mortgages and therefore reduced demand for buying houses. Also house prices were…