Question

a. Based on the functions of the banking system, give reasons why governments bail out banks during an economic crisis? [Not more than one-page]

b. Is the World heading for a recession? Explain the conditions under which the world can be classified as being in a recession as COVID-19 persists. Explain linking the pandemic to the various stages of a recession. [Not more than one-page]

Answer 1

FIRST QUESTION-

banking sector is the most crucial sector of any economy.it is an important institution which turns the idle money and saving into investment and provide funds to various sector.

government assistance concerned with the banking system.

economic crisis put pressure on almost every sector in the economy.we can understand the process and impact as follow.

1. taking the recent covid-19 situation, there was/is complete lockdown in almost every country of the world.
2. almost every sector like airline,transportation,automobiles,technical sector is struggling to sustain.
3. innumerable persons have lost their jobs and some are under threat and fear for job lose.

above points proves that economy is facing a financial crisis.all the above sector are concerned with the banking system.all have some kind of dealings with the banks.they have borrowed large amount of funds to run their business against the deposit made by the people to banks.

• banks keep only a certain percentage of cash reserve ratio against the deposit.
• due to job loss, business loss banks are also facing increasing NPA in the economy.
• in the economic crisis time,people in panic situation wants to liquidate their funds and therefore the bank faces huge demand for money,

at this time,bank needs the help of government and thus government helps the banks by providing liquidity facilities,financial assistance so it can prevent the banks from bankruptcy and failure.

SECOND QUESTION-

world and recession-

due to the pandemic of covid-19 the world is undoubtedly heading towards a recession.

reasons,condition which represents the recession-

1. the GDP of all the country of the world is visibly declining ,some have been predicted to be zero and even some have been predicted to be in zero.
2. the unemployment level is at its peak
3. there is a great fall in the demand
4. business activities are struggling to sustain

all these are witnessing that the world is heading toward a recessionary phase.

• due to covid-19 the business concerned with airlines,tourism and other have been affected badly. the production has been declining and therefore the unemployment is increased.
• if the situation remains same and lockdown is extended then the new and worse phase of recession which is considered as depression can be seen which is responsible for devastating the economy and the impact could be seen and experienced to several years and decades.