Question

1) A financial crisis can lead to a recession because it can cause:

Answer 1

Answer:

1. A

2. C

Explanation:

For part (1), any type of financial crisis can lead to a recession (Like the one in 2008 as well) and cause the wealth and income to fall, reducing the purchasing and spending power of the people  and ultimately leading to an increase in unemployment. This is because businesses will cutoff their employees and this will cause unemployment and the people who would be lucky enough to still get a job will be hired on a very low income which will ultimately reduce spending as well.

Th opposite will happen in the other case (2), as there will be expansion if there in increase in wealth, investiture, consumption, production output and employment.

Hope this Helps.

Answer 2

Answer 1:

The correct answer is A)

Recessions are mostly caused by a lack of circulation of money in the economy.

Explanation:

In economic parlance, this shortage is captured as:

Shortage in government spending thus translating to low circulation of money as businesses that depend on the government experience low transactions. Please note that in many cases, the Government is the largest spender.

Shortage of Investment leading to low employment which ultimately reduces disposable income.

Answer 2

The correct answer here is C

An increase in investment goes hand in hand with an increase in consumption, output, and employment.

If for instance, the government makes capital available through the banks a very low-interest rate, this will encourage businesses to leverage off the cheap capital to expand, acquire new technologies, and employ more hands to become more competitive and more dominant in the market.

So a new invention will translate to expansion if

• businesses are willing to invest in it;
• consumers are willing to buy it;
• the invention translates into increased output and lastly,
• if through the invest, businesses are willing to employ more labor to cater to the expansion in demand

Cheers!