Question

In 150-words, explain what happens in an economy when the financial markets limit access to capital. How does this affect economic growth and employment

Answer 1

Explanation:

Financial markets limit access to capital in times of inflation to ease the market. Limit access to capital means that it becomes harder for companies to borrow capital. The interest rate is also increased. This limitation to access capital results in a slowdown of the growth of an economy and further results in increased unemployment rate.

When firms are not able to borrow money for their investments, their growth slows down and in a recession they are forced to layoff workers which results in an increase in unemployment rate. Decrease in the over production in an economy slows down the economic growth of the economy.