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Being of a vital contribution to the global economy, the United States economy’s challenge had a wide range of implications on other countries’ economic situations, including Japan and others in the European Union. Slowly, the effect of the crisis evolved to a number of countries, and by the mid of 2008, the economic crisis had spread over an appreciated region, worldwide. Many countries with emerging economies felt the influence of the recession that had its manifestation in a number of ways including increased poverty level. Among the countries that experienced a hard hit were the South Africa, Turkey and Mexico. Some like China, however, managed to have a fair time during and after the recession since it records an appreciated rate of economic growth.
Notably, the recession had emanated from a number of factors and got policymakers and investors unaware. Multilateral agencies and analysts of economic situations underestimated the effect of the financial crisis and the great depression, at the beginning. Signs as the high current deficits, mainly in the United States and United Kingdom, were a clear show that the economy was at under challenge. The lax financial regulation in the United States, coupled with the loose monetary policy experienced were among the different various signs of a financially unstable period. However, after Lehman Brothers experienced a collapse, the situation received attention from policymakers and investors. Investors, for instance, revised their strategies.
Noteworthy is the transmission effect of the financial crisis to the country’s real economy. The effect of the real economy on occurs through five notable ways. The wealth effect on the real economy relates to the reduction in net worth of households. The crisis experienced had considerable effects on the well-being of households in the United States. A significant number of households experienced financial distress because of the