Question

When the 2008 financial crisis began in the United States, it resulted in the collapse of the housing market and the failure of several large financial institutions. This crisis spread rapidly to the rest of the world. This example demonstrates which trend in the global economic environment?

a.
Political instability is the primary result of economic failure.
b.
Economic development differs widely among countries of the world.
c.
World markets are economically interconnected.
d.
Market demands differ for products and services throughout the world.
e.
Cultural factors have a greater impact on world markets than do economic factors.

Answer 1

The 2008 financial crisis showed that world markets are economically interconnected, as the crisis originating in the U.S. affected financial institutions globally and caused recessions and slower economic growth in many other countries.

Step-by-step explanation:

The 2008 financial crisis that began in the United States and led to the collapse of the housing market and several large financial institutions illustrates the trend that world markets are economically interconnected. This crisis, also known as the Great Recession, rapidly spread to other countries, affecting many high-income regions including Western Europe and Japan, all of which experienced similar financial turmoil and recessions. U.S. trading partners entered into recessions of their own or experienced slower economic growth. Moreover, the financial measures taken, such as bailouts, highlighted the interdependency of these markets since financial institutions bridge the gap between demanders and suppliers of financial capital, necessitating their functionality for economic investment.

In response to the financial crisis, many governments implemented austerity measures and provided significant financial assistance to stabilize the affected institutions. This interconnectedness was further evidenced by the financial repercussions and austerity measures that countries like Greece, Ireland, Spain, and Portugal had to undertake, demonstrating that economic events in one region can have substantial impacts globally due to the interconnected nature of financial markets.