Economic bubbles can lead to financial crises.

Economic bubbles occur when the prices of assets, such as stocks or real estate, become inflated beyond their intrinsic value. This leads to unsustainable market behavior, with investors driving up prices based on speculation rather than fundamentals. When the bubble bursts, it can result in a rapid decline in asset prices, causing financial crises that impact economies on a large scale. Historical examples of economic bubbles include the dot-com bubble of the late 1990s and the housing market bubble that contributed to the 2008 financial crisis. Understanding and monitoring these bubbles is crucial for economic stability.