Question

How can we prevent financial collapses after seeing two major ones (South Sea bubble and 2008 financial crisis)? explain 5-6 ways of preventing collapses

Note: ANswer has to be in 300 words. please do not copy and paste from online courses.

Answer 1

Financial collapses can only be prevented by proactive management through an efficient Central Bank as well as an efficient Central Government who is trying to to formulate policy in order to revive the economy.

There are few ways by which one can prevent financial collapses.-.

1. Better management of monetary policies-Federal government is responsible for designing the monetary policies according to different economic scenarios and it should always be designing policies not in pressure of Central Government. It should be deciding according to the need of the current economic scenario and then formulating the policies according to that.

2. Proactive not reactive-the Federal government as well as the Federal Bank must be acting proactively in order to reduce and minimise the impact of crisis and not after the crisis has happened.it is a common phenomenon where Federal governments generally wakes up after the damage has been done, but it has to be the other way around they need to be proactive in order to manage.

3. Detection of fraud and monetary mismanagement -Federal government needs to detect the fraud and control mis-management as it will help to control the intensity of contrarian spreading leading through an economy collapse.

4. Providing stimulus and bailout packages-Federal government need to be ready with providing stimulus and Bailout packages as and when needed so that the impact of an economic collapse is minimised to the maximum extent.

5. Intervention into markets at regular intervals-Central Government and Federal government need to intervene at regular intervals during the time of chaos.