Finance Interview Technical Test 2025 – Complete Practice Guide

A common consequence of a financial crisis is a widespread economic recession. During such crises, financial institutions may face liquidity shortages, leading to a loss of confidence in the financial system. As a result, consumer spending typically decreases due to reduced access to credit and higher uncertainty about the future, which in turn slows down economic activity. Businesses may cut back on investment and hiring, leading to higher unemployment rates, decreased production, and lower GDP growth. The chain reaction of reduced demand and spending can propagate throughout the economy, causing a significant downturn that characterizes a recession.

In contrast, increased employment rates, stability in financial markets, and a reduction in government debt are generally not associated with financial crises. Typically, financial crises result in higher unemployment, instability in markets due to volatility and uncertainty, and often lead governments to increase debt levels in efforts to stabilize the economy and support recovery.