What characterizes a financial crisis?

A financial crisis is primarily characterized by severe disruptions within the financial system. This disruption can manifest in various forms, including but not limited to, significant declines in asset values, bank failures, increased unemployment, and overall economic instability. During a financial crisis, the usual functioning of financial markets is compromised, leading to widespread negative consequences for consumers, businesses, and the economy at large.

In this context, other options do not align with what defines a financial crisis. An increase in stock prices typically suggests positive market sentiment and economic health, while a stable financial system indicates resilience and confidence among financial institutions and investors. Lastly, a successful period of economic growth is characterized by rising GDP, increasing employment, and stability, which directly contrasts with the chaos and downturn found in a financial crisis. Thus, the emphasis on severe disruption in the financial system accurately identifies the defining characteristic of a financial crisis.