Financial panic refers to the period when the economy collapses suddenly and drastically. It then spreads, not only domestically but also throughout the world. Consumer and business trust has fallen. Risk perception overflows, and many people believe their money and investments are in danger, encouraging them to secure it to safer assets such as gold.
Panic can quickly spread throughout the world. Investments and loans in global financial markets are increasingly integrated. Trade-in goods and services between countries also continue to grow. Finally, panic in one country can spread to other countries quickly, both through the transmission of international trade and financial markets. And, consequently, the business cycle in one country increasingly influences the business cycle in another.