Question

Economic instability sources come from the financial system itself. Please clarify. 1. Interest rates increases 2....

Economic instability sources come from the financial system itself. Please clarify.

1. Interest rates increases

2. Increases in uncertainty

3. Effect from asset market on firms’ profit.

4. Problems in banking sector.

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Answer #1
  • Economic instability - when interest rates increases the economic instability also increases as it result in decrease in economic growth .Hence interest rates and economic instability has direct relationship.
  • Increase in uncertainty - If the uncertainty increases obviously it will have a negative impact on the economy . hence the increase in uncertainty will increase economic instability.
  • Effect from asset market on firm's profit - when the asset in the market increases it will increase the firm's profit which will in turn increase the economic growth and hence the economic stability falls
  • Problems in banking sector - problems in banking sector may reduce the funds in future leading to fall in economic growth and rise in economic instability
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