Financial crises can have significant economic consequences from "summary" of Economics of Money, Banking and Financial Markets, Business School by Frederic S. Mishkin
When financial crises occur, they can have far-reaching effects on the economy. One of the most immediate consequences is a decrease in consumer and business confidence. Uncertainty about the future leads individuals and firms to cut back on spending and investment, which can further exacerbate the economic downturn. This decrease in aggregate demand can lead to a contraction in economic output, resulting in lower employment levels and decreased wages. Financial crises can also lead to disruptions in the financial system. Banks and other financial institutions may experience runs as depositors withdraw their funds out of fear of bank failures. This can lead to a credit crunch, where banks become hesitant to lend to businesses and individuals. As a result, businesses may struggle to access the financing they need to grow and expand, f...
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