What defines a financial crisis?

A financial crisis is primarily characterized by a significant decline in the value of financial institutions or assets. This can manifest in various ways, such as bank failures, stock market crashes, a sharp drop in real estate values, or a widespread lack of liquidity in the financial markets. When these events occur, they often lead to severe disruptions in the normal functioning of the economy, resulting in decreased lending, increased unemployment, and a downturn in economic activity.

This option accurately captures the essence of a financial crisis, as it highlights how systemic failures or significant devaluations can lead to broader economic issues. In contrast, the other choices describe conditions that are opposite of a crisis: sustained economic growth, high consumer confidence and spending, and rising stock market prices all indicate stability and prosperity, not crisis.