The Overleveraged Economy of Iceland | Economics Explained

Iceland's economy is unique due to its small population and reliance on natural resources like geothermal energy. Despite its small size, Iceland has a significant industrial sector, particularly in aluminium production, thanks to cheap electricity. The country faced a major financial crisis in 2008 due to an overgrown banking sector, but it recovered through government intervention and a boom in tourism. However, the COVID-19 pandemic has again challenged its economy, highlighting its dependence on tourism.

What makes Iceland's economy unique compared to other small nations?

• Its large population

• Its self-sufficiency and geothermal energy

• Its high GDP compared to Sweden

• Its reliance on oil exports

What is a key reason for Iceland's high cost of living?

• Abundant natural resources

• High average salaries

• High cost of imported goods

• Low energy costs

Why is aluminium smelting a significant industry in Iceland?

• Due to government subsidies

• Because of high local demand for aluminium

• Due to the cheap and abundant electricity

• Because Iceland has abundant aluminium ore

What is a major reason for the growth of cryptocurrency mining in Iceland?

• Abundant local supply of mining hardware

• Cheap electricity and cold climate

• Government incentives for mining

• High local demand for cryptocurrencies

What is a significant advantage of Iceland's energy sector?

• High cost of electricity

• Dependence on fossil fuels

• Abundance of renewable energy sources

• Limited energy production

What was a key factor in Iceland's financial collapse in 2008?

• Over-reliance on the fishing industry

• Excessive growth of the financial sector

• High inflation rates

• Lack of international trade

How did the financial sector's growth affect Iceland's traditional industries?

• It had no impact

• It made them more competitive

• It made them less competitive internationally

• It increased their profitability

How did Iceland's government respond to the financial crisis?

• By increasing taxes

• By joining the European Union

• By dividing banks into local and foreign operations

• By closing all banks

What industry became crucial for Iceland's recovery post-2008?

• Fishing

• Tourism

• Banking

• Agriculture

What challenge did Iceland face due to its reliance on tourism?

• Decreased demand for local products

• Economic vulnerability during the COVID-19 pandemic

• Environmental degradation

• Overpopulation