Question

Study the following statements. Evaluate whether these statements are TRUE or FALSE (0.5 X 20 = 10 points)

6. The probability of a financial crisis increases when governments limit capital mobility and information becomes more accessible to all market participants.

7. Economic globalization can be defined as the widening, deepening, and speeding up of worldwide interconnectedness.

8. One of the explanations of economic globalization is the rise and dominance of neo-Marxist ideology in developing countries.

9. The Marshall Plan was initiated by the Soviet Union to help the Western European economies.

10. A sceptical argument posits that regionalization and triadization, not globalization, are the dominant tendencies in the contemporary world economy.

Answer 1

Q6. False. The probability of financial crisis increases when there is no proper information disclosed and people end up paniking or over reacting as they have limited knowledge or information. And as seen from previous financial crisis, all had credit expansion before the hit of crisis.Thus too much liquidity in the economy which increases investor risk taking attitude

In 2007 financial crisis, the same credit expansion took place which led investors to take risk and led to asset price bubble, thinking that the price rise will continue, which was merely because of speculation as no information was disclosed.