Economics

Difference Between Financial Crises and Economic Crisis

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Main Difference

The main difference between Financial Crises and Economic Crises is that Financial Crises is a situation in which the value of properties declines causes a decrease in the economy, whereas Economy Crisis is a sudden lockdown due to financial crisis.

Financial Crisis vs. Economic Crisis

The financial crisis is a sub-division of an economic crisis. The economic crisis is the outcome of the financial crisis. The financial crisis is a condition in which the price of property declines suddenly. The economic crisis is a sudden fall in the economy.

The financial crisis targets the banking zone and financial institutions. The economic crisis targets the economy of a country. The financial crisis causes liquidity shortages and reduces the economy. The economic crisis leads to unemployment. The financial crisis has many types, like a banking crisis and market failure.

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Economic crises can be a depression crisis or recession crisis. Financial crises cause inflation or deflation, whereas the economic crisis causes stagflation. The 2020 crisis due to COVID-19 is the worst financial crisis ever. 1929-39 disasters lead to the worst economic instability.

Comparison Chart

Financial CrisisEconomic Crisis
The situation in which the value of assets decreases in the economyThe situation of a sudden downturn due to the financial crisis
Institutions
Financial and banking sectorsFinancial institutions, Economic activities
Outcomes
Liquidity shortages, economic instabilityThe financial crisis, unemployment
Economic Effects
Sub-selection of economic crisisView of economic performance
Types
Market failure, banking crisis, economic crisisDepression, Recession
Leads To
Inflation, deflationStagflation
Example
2007-08 crisis1929-39 crisis
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What is Financial Crisis?

Financial crises are a condition in which the assets suddenly lose their financial value. Due to downfall, the customers are unable to recover their loans, and financial institution suffers from severe conditions. Bank and other financial institutions are the main sectors that are affected. These sectors suffer from liquidity shortages, leading to the instability of the economy. The financial deeds through bank and another related zone is disturbed. The national credit and asset prices alternate.

The financial crisis has many types that can be a banking crisis, currency crisis, international financial crisis, speculative bubbles, and winder economic crisis. It happens that financial crisis may limit up to financial institutions and or industrial quarters, or it can spread in a region, country, or throughout the world.

Examples

  • 2008 Financial Crisis: After the worst crisis and depression of 1929, the 2008 crisis is the worst one. The Federal Reserve and Treasury Department made try to prevent it, but it occurred. In this crisis, the prices of houses reduced, that was a Great Recession. In 2006, the housing market made assets. The bank gave bad home loans with good homes as mortgage-back securities. The investor’s percept that they are secured under the policy. But a big crisis occurred.
  • 2020 Financial Crisis: The corona lockdown throughout the world brought a worse financial predicament. COVID-19 has put the globe under lockdown, along with thousands of lives, the global markets need to be shut down. British Airways CEO Alex Cruz stated the situation: “crisis of global proportions like no other we have known.”

What is the Economic Crisis?

The financial crisis in a region leads to an economic crisis. The situation of an unexpected downturn due to a financial crisis in a country is called an economic crisis. The unemployment increases in the country result in liquidity dryness. The production level decreases, the GDP falls, and economic variations occur. The cause may be deflation or inflation. The economic crisis has two forms: one is depression; the other is a recession.

The causes or reasons of economic crises vary. Sometimes, the mismanagement cause crisis. If the assets do not match with financial sectors, it causes a financial crisis. If values of stock and securities go in the downturn, it is the initiation of an economic crisis. The entire economy destroys due to the economic crisis. The economic crisis has adverse effects on the country, the public, and financial institutions.

Examples

1929-1939 Financial Crisis: From 1929 to 1939, the industries faced the worst economic depression. The crisis started in October 1929, when the stock market crashed and effected thousands of investors. In the coming years, the investment was not fruitful. Unemployment increased as workers were out of a job. In 1933, almost half of the banks of America failed, and millions of people were unemployed.

1973 Financial Crisis: The OPEC oil price shock of 1973 is also a significant financial crisis that led to an economic crisis. After an agreement between 12 counties, they decided to stop import oil to the USA. In six months, oil prices increased four times. It was a tough time for the American economy. These were significant economic Recession.

Key Differences

  1. The financial crisis is a condition in which prices of the properties suddenly fall, whereas the economic crisis is the result of a financial crisis.
  2. The financial crisis mainly affects banking sectors, and financial institutions on the flip side economic crisis affect the economic condition of the region.
  3. The financial crisis causes liquidity shortages, and economic instability won the other hand, the economic crisis causes financial crisis and unemployment.
  4. The financial crisis is a sub-division of economic crisis, while the economic crisis reflects economic operation.
  5. Financial crisis can be of many types like the banking crisis; market shares conversely economic crisis can be in the form of recession or depression.
  6. The financial crisis leads to an increase or decrease in prices, whereas the economic crisis leads to a sudden increase or decrease in price and unemployment.
  7. The best example of the financial crisis is the 2007-08 crisis; on the other hand, the best example of an economic crisis is the 1929-39 crisis.

Conclusion

Financial Crises and Economic Crises both cause instability in the economy. Financial Crisis is a condition in which the value of the country’s assets falls suddenly. Economic Crisis is the result of financial rises in which the economy is destroyed at all.

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