A recession is a recession in the economy

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:42

Recession is a slowdown or complete absence of economic growth or a temporary economic downturn. It's sort of a transitional phase between boom and bust and, according to the classic definition of a recession, it's zero economic growth for 6 months.

What is a recession and why does it occur

A recession is a situation in which factories produce less products than they used to. When store sales are down and consumers are making fewer purchases. This is a significant reduction in business activity, accompanied by a number of factors that are negative for the state of the economy.

For example, consider the period of recession caused by the mortgage crisis in the US. It can develop according to the following scenario: banking institutions decide to write off assets, as they understand that they have recently issued a large number of "bad loans". That is, in such a situation, the bank has less funds on its balance sheet than they thought. To solve the problem, banks are tightening the procedure for issuing new loans, laying off employees, and so on.

The rest of the business in this case lacksworking capital, he also has to cut production and lay off employees. A recession is a rise in unemployment and a reduction in incomes of the population. As a result, private consumption is reduced, which again leads to the fact that the business sells less and reduces purchases from suppliers.

Economic depression

To break this vicious circle, the state must inject additional funds into the country's economy by any means, reducing reserve requirements, lowering taxes and interest rates. Only in this way the economic recession will not go into unacceptable limits. But at the same time, the money that should contribute to economic growth, at the same time provoke inflation. But in this situation, it is quite justified and justified by the restoration of the economic situation.

Approaches to defining a recession

Recession is a general decrease in business activity, global in scope and long enough in time. Recession differs from structural sectoral crises in that it covers the entire economy of the country as a whole. Also, it has nothing to do with the seasonal decline in business activity, since this period is longer in duration.

Recession is one of the stages of the economic cycle, this phenomenon inevitably follows a period of economic growth. Business activity, as a rule, includes four consecutive phases: boom, peak, recession and crisis. Each phase plays a role in the unfolding of the business cycle.

It is worth noting that any crisis only strengthens the economic system, albeit at the expense of political and social upheavals. In the process of a recession, weak links in the economy are weeded out, making room for new beginnings. The recession in the economy disciplines the business and forces to abandon inefficient methods of work. Paves the way for young and promising enterprises using new technologies.