A prolonged situation of economic recession, with associated effects such as unemployment, business closures, and a decline in consumption and investment. There are many factors that can cause a crisis; for example, in the 1970s, the sudden increase in oil prices was a factor. However, a factor that often repeats itself is cheap credit, which promotes investment and reduces savings. People prefer to consume and borrow to buy, for example, homes that increase in value and could be sold in the future at a higher price. All this leads to a mismatch that explodes when it is discovered that the investment has been excessive and wrong. It is a very harsh process, as it causes millions of lost jobs and the closure of hundreds of thousands of companies, as happened in 2007. The crisis ends when these investments have been paid or absorbed and replaced by new, more successful ones. This is why government action is very important, as it can facilitate this adjustment by lowering taxes and flexibilizing markets so that savings can strengthen and finance investment, new companies can be created, and workers can move from one job to another without being unemployed for too long.
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