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History still remembers the financial crisis the world market faced in the years 1921, 1990, and 2008. Nations all over the world are not indifferent to the fact that time and again they will have to face financial breakdown depending on the performance of money on the global platform. This financial breakdown can happen anytime in the economy. However, sometimes it can turn into a bubble or depression in the economy which will tie down the operations of the economy and bring all the recovery options to a pause. This is what you call a financial catastrophe.
It is not so easy to get over a financial disaster, but it is not impossible. So here are some of the tips to get over a financial crisis that hits a nation.
Cut down the expenses:
This is the first and the basic step in any economic depression or during any form of financial crisis. The moment a nation realizes that its economy might hit a financial constraint the first thing it does is to kill all the expenses and starts saving to protect the nation from insufficiency of funds and stagnancy. The nation has to incur only the expenses that are inevitable and reduce expending on unwanted expenses as in foreign policies and tourism.
Protect the residents:
The wealth of any nation is represented by the growth and wellness of its residents. So if the people of the nation are aware of the criticality, they will be able to contribute better to the growth of the economy. Every time a financial crisis strikes a nation, there are certain sectors of people who face major loss: people below and closer to the poverty line, people in the agricultural sector and the middle-class employees. Steps have to be taken to protect these people from suffering.
Always provide for the crisis:
A good economy is one that provides for crisis and has adequate measures taken to meet the consequences of a financial disaster. It is understandable that a nation cannot always stay waiting and providing for a disaster. So what should be done? This is where analyzing the past will help the nation provide for such crisis. Have a look at the past records and identify the symptoms of a falling economy. If you find similar traces, then get into action immediately.
Make sure you anticipate:
This is similar to the previous point. It again talks about anticipation, but about future. We live in a technologically advanced world where we have a large scope to figure out the fluctuations in an economy. A good economist can always travel ten years into the future and tell you what to do and what not to do. So staying a little ahead of time will always prevent the nation from major loses.
Try out the Keynesian Theory:
The Keynesian theory developed by the English economist Keynes plays an important role in the reformation of an economy. The theory was developed as a means to find a way out of the great economic depression that hit the global economy in the year 1921. General economics always stated that an economy would automatically get back to its natural state of equilibrium, but Keynes felt different. He stated that are two factors called the boom and the bust. Save when it is a boom, and when the economy is busted get into deficit spending.
The financial system and the economic development of a country go hand in hand. An economist cannot view economic development and financial system as two different things because the potential development of an economy depends on the strength of its financial system. This clearly states that the two concepts are inseparable. Let us see the participation of financial system in the growth of the economy. But before we get to it, there are two important terms here: financial system and economic development. Let us understand them separately before analyzing the relationship between them.
What is Economic development?
- When the economic, social and political well being of the citizens of a nation develop complimenting each other, then it is called economic development. A lot of people tend to get confused between the words growth and development.
- The word growth simply means the increased ability of the nation to produce more goods and services from then on this simply represents the GDP of the nation and generally doesn’t take the welfare of the people into consideration.
- The growth of the nation can fluctuate depending on its productivity in a particular financial year. Economic development is more sustained, slow paced and occurs over a long period.
Financial System of a country:
- A financial system is made up of three main participants: lenders, borrowers and investors. Participants of the financial system exchange funds, where the market is complex, closely related and they keep linking the investors and the borrowers. The financial system of the nation is expected to make its participation in the national, international and also at different trade levels.
- The other important factors that are a part of a financial system is the markets that let potential investors and borrowers meet. The investors and buyers carry out their transactions through the market instruments that are available in the markets.
- The financial market is broadly classified into Capital Market, Money Market, and Forex Market. Each market has its own set of market instruments on which the participants of the market trade and make profits. The better the participation, the more the economy develops.
Relationship between the two:
- Now we have a decent knowledge of the terms financial system and economic development. So let us see the relationship between economic development and financial system, and how it affects a nation.
- After understanding the terms economic development and financial system, it is quite easy to say why the development of an economy depends very much on its financial system.
- It is no doubt that the financial strength is imperative for the development of the economy. So the wealth of the nation is the collective strength of the individuals who participate in the monetary transactions of the nation.
- A lot of individuals, firms, companies and other enterprises take part in the financial system. The growth and profitability of every single participant in this system automatically reflect on the growth of the nation.
- Especially profits made by investors in the forex markets lead to huge improvement in the financial strength of the nation.
- Bankers, investors and financial institutions, who form the financial sector of a government, spend, liquidate and multiply their money in this financial system. So this simply means that the strength of the nation depends on the strength of its financial system.
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