Finanical Crisis

Question 1

When does a financial crisis occur ?

Answer 1

During a prolonged period of prosperity

Question 2

Factors leading to a crisis

Answer 2

Fuelled by destabilised speculation (all eggs in one basket)

Whereby people buy assets in anticipation of future capital gains and are not justified by ‘real worth’

Herding behaviour lead to asset bubbles followed by the collapse of asset prices