What is a financial crisis and how does it affect an economy?

A financial crisis is a situation where the value of financial institutions or assets drops sharply, causing widespread economic instability. It can be triggered by a variety of factors, such as excessive debt, market speculation, banking failures, or sudden shifts in investor confidence. During a financial crisis, businesses may face difficulties obtaining credit, leading to lower investment and layoffs, while consumers may reduce spending due to job losses and uncertainty. The crisis can cause a sharp contraction in economic activity, lead to stock market crashes, and result in government intervention to stabilize the financial system and restore confidence in the economy.