Passage Based Questions: Logical Reasoning - 13 | Passage Based Questions for CLAT Preparation PDF Download

Directions: Read the following passage and answer the questions.
As businesses deal with the prospect of a sudden stop in their cash flows, the most exposed are a relatively new generation of companies that already struggle to pay their loans. This class includes the “zombies” -companies that earn too little even to make interest payments on their debts, and survive only by issuing new debt.
The longer the pandemic lasts, the greater the risk that the sharp downturn morphs into a financial crisis with zombie companies triggering a chain of defaults, the way subprime mortgages did in 2008.
Over the last century, recessions have almost always been started by a sustained period of higher interest rates. Never a virus: The damage such contagions inflicted on the world economy typically lasted no more than three months. Now this once-in-a century pandemic is hitting a world saddled with record levels of debt.
Central banks around the world are realising that a crunch could beget another financial crisis. As the Fed pushes aggressive easing measures straight out of its 2008 playbook, in an effort to stem market panic, its worth examining why the financial system feels so vulnerable again.
Around 1980, the world’s debts started rising fast as interest rates began falling and deregulation made it easier to lend. Debt tripled to a historic peak of more than three times the size of the global economy on the eve of 2008 crisis. Debt fell during the crisis, and central banks around the world subsequently dropped rates to new record lows in hopes of stimulating recovery.