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FORMATIVE ASSESSMENT Activity 20 Question 2

What were the effects of the global financial crisis?

The global financial crisis has been one of the most significant economic shocks in

the post‐war period. At its core, the crisis originated in credit markets in developed

countries – centred particularly in the United States, the United Kingdom and Europe

– but the fallout has had a significant effect on activity in every country and region.

As the crisis intensified, there was a large swing in the appetite of world financial

markets for risk, and in their capacity to accept risk. The result was a shift from the

easy credit conditions that had prevailed for some years to a situation of tight credit

and in some cases dysfunctional markets. This was accompanied by a loss of

consumer and business confidence, with significant effects on global activity. The

effect of the crisis on Australia has been considerably less than in many other

countries. The Australian economy recorded markedly better growth outcomes than

most other developed economies, many of which have experienced severe

recessions and rises in unemployment. The Australian financial system has been

markedly more resilient.

That said, the local economy and financial markets have not been immune. Growth

in the economy slowed to around half a per cent and the unemployment rate has

risen by nearly two percentage points to around 5¾ per cent by November 2009.

The most obvious impact of the financial crisis on most Australian households was

the large decline in equity prices, which reduced the wealth of Australian households

by nearly 10 per cent by March 2009. However, since the trough in equity markets in

March 2009, the local market had recovered half of its decline by the end of

November 2009.
Some Global effects include:

1) Fiscal Austerity

2) Growth of unemployment

3) Redundancy

4) Reduction in employment growth

5) Saturation of the labour market as more and more skilled workers are seeking

employment

6) Increase of casual and part-time work

7) Increase in Bankruptcies

8) Tightening of lending to businesses

9) Workers saw vast losses on Superannuation

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