About Recession
A recession is a difficult economic time when an economy shrinks. The technical definition of a recession is "a period of general economic decline; specifically, a decline in gross domestic product, or GDP, for two or more consecutive quarters." However, the term "recession" is often used during times of wide economic hardship regardless of how long it lasts.
Other People Are Reading
-
Identification
-
There are many indicators of a recession. Businesses sell fewer items because of falling demand. This can happen for several reasons including inflation, deflation and stagflation. These are when prices rise, fall or fail to grow. At times like these, businesses suffer, shareholders don't make money and work forces are downsized.
Function
-
A recession is usually the result of a domino effect. Problems start in a few aspects of an economy, then spread. Growing unemployment leads to lower personal income. The less money people have, the fewer things they buy. Fewer purchases lead to decreased production. Lower production leads to layoffs and more unemployment. It is a vicious cycle that eventually leads to a falling stock market and can result in a decreasing value of currency.
-
Effects
-
Recessions result in large-scale human suffering. Many people are out of work, and those who are working have less disposable income. This results in slower economic activity that, in turn, prolongs the recession. If nothing happens to stop this economic slide, the recession can turn into a depression. An economic depression is defined as a decline of GDP of more than 10 percent. An especially severe depression can result in economic collapse and the devaluation of currency. If this happens the economy must essentially start over.
History
-
The National Bureau of Economic Research identifies 18 recessions in American history. They have lasted between one year and 23 years. The recessions all follow some kind of crisis. These can be a banking crisis, a sudden increase in oil prices or hyperinflation. The recessions ended when the economies were impacted by change in the business environment. Historically these changes have included government spending programs, increase in demand as a result of new technologies and the mobilization for war.
Prevention/Solution
-
There must be an economic stimulus to pull an economy out of recession. Economists disagree about what this stimulus should be but agree that it should involve getting people to spend money and businesses to produce more. Some say citizen taxes should be cut, some say businesses should get tax breaks, others say the government should borrow money and initiate spending programs. There are also economists who say the economy should be allowed to regulate itself. Economies eventually rise out of recession, though it often takes several years.
-
