Financial crises can have significant macroeconomic consequences from "summary" of Principles of Macroeconomics by N. Gregory Mankiw
Financial crises are events that occur when financial markets are disrupted, causing adverse effects on the overall economy. These crises can have far-reaching consequences on the macroeconomy, impacting various aspects such as output, employment, and inflation. One of the key ways in which financial crises affect the macroeconomy is through their impact on the banking sector. When a financial crisis hits, banks may face solvency issues as their assets lose value and borrowers default on loans. This can lead to a credit crunch, where banks become reluctant to lend, causing a decrease in investment and consumption. Moreover, financial crises can also have significant effects on asset prices. During a crisis, asset prices, such as stocks and real estate, may plummet as investors panic and sell off the...
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