A financial crisis is a sudden change in financial situation, affecting individuals, companies, and countries. A recession is a period of financial hardship, shown on a graph as a downturn. A crisis can lead to a recession or depression. It can affect any scale, from personal finances to the global economy.
A financial crisis is a change in a financial situation, in which a person or organization that has had good financial results suddenly starts experiencing difficulties. The rationale behind this particular term is that a business or person who is doing well financially may plot profits and success on an upward moving graph, while a downturn indicates declining finances or profits. This term can be applied to a private citizen, a larger organization such as a bank or company, and much larger groups such as countries and even the global economy. A financial crisis can lead to other financial situations, such as a depression or a recession.
Unlike a financial recovery, which is a time of prosperity or profits, a financial recession marks a time when a business or person experiences financial hardship. The easiest way to visualize this time period is through a graph that shows time along the bottom and profit or revenue along the side. As a person or business is profitable, the graph line will move from left to right to the top, indicating profit over time. When this is no longer true and a company or person starts losing money, the line turns down to indicate a financial recession.
While news reports often refer to a financial downturn in regards to the global or national economy, it can be used on virtually any scale. If someone makes a large amount of money at their job, and then loses that job and can’t find a new one, then this loss of income indicates a downturn in their personal finances. Similarly, a business of any size can experience a financial downturn due to a loss of revenue from damaged inventory, increased operating costs, or decreased sales.
A nationwide or global financial recession often refers to large-scale economies rather than particular individuals and businesses. A country may experience a recession, often due to lower revenues for the country, higher spending, or other economic factors for that country that have turned negative. Businesses within that country, however, may still be profitable and may post record financial gains, as the condition of a larger economic system may not necessarily reflect on every aspect of that smaller-scale system. A financial crisis often leads to a recession, in which a nation’s economy experiences a period of decline, or an exaggerated and longer period of decline, often referred to as a depression.
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