Anonymous asked in Social ScienceEconomics · 1 decade ago

Recession! we talking all of us now days about it. explain it what is this?

Recession in nutshell means to decline in the GDP, employment & trade lasting from six months to a year. How its happen, I mean the demand, supply, consumption all are in same trend. Then how sudden its takes place, what factors are responsible for that. Is it some time just psychological and not in real. Plz comments in detail.

3 Answers

  • 1 decade ago
    Favourite answer

    I really think there are several factors contributing to this depression. First of all, recessions are just part of the normal boom and bust cycle. I was reading in the Atlantic that they even happen in labratory tests, where all the "players" know exactly what a "stock" is worth -- they figure they can get someone else to buy it for more than it is worth, and so goes the boom . . . followed by the bust when that stock simply can't be supported anymore.

    The energy crisis is a big part of why this recession has turned into a depression. High fuel prices, worries about the future, and also, they are turning food products (grain) into fuel, and that contributes to rising grocery prices.

    Yes, some of it is psychological, but a great deal of it is just natural -- we've been living high off the hog for a long time; it's time to counterbalance that.

    But, just like Schwarzenegger, the economy is strong, and It Will Be Back. Not soon, but I'd say within a decade.

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  • 1 decade ago

    One of the best websites on economics is "Economists View" from Mark Thoma at the University of Oregon. I have included a link as the source.

    There can many different causes of recession. In this case, even the traditional definition was not useful, because the measure of GDP was so inaccurate for so long, and is still inaccurate.

    This particular recession was caused by the bursting of the housing bubble, which wiped out $6 trillion in asset value in roughly ten months. Compounding the problem was the investments in derivatives which cost the banks roughly another $7 trillion, and drop in the stock market which claimed another $5 trillion. (It seems sudden, but it is the result of unbalances that took many years to develop.)

    With so much less wealth in the hands of consumers, we cut back on spending, which accounts for the vast majority of GDP. A 1% downturn in spending usually leads to 1% job losses, which is more than a million people.

    The good news is that supply and demand stabilize at lower levels, and the value of money stabilizes at a lower level as well. Everyone is poorer, but the economy continues to function.

    The bad news is that the people at the bottom are much, much poorer. The people on Wall Street are still getting million dollar bonuses each year, but a lot of average people lose their jobs, their homes, their life's savings, and their opportunities for improvement.

    For rich people, that may be just psychological. For most of the rest of us, it is very real.

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  • 1 decade ago

    Technically it is two consecutive quarters (6 months) of 'negative growth'. How you measure growth is the sticking point, and it's much easier to do in hindsight than as it happens.

    Variants on the definition can be found on wiki (as usual)

    The trickier question is to do with what makes growth or gdp? It is kind of describable as the total quantity of monetary transactions per cycle slowing down (in practice and measured that would massively over state gdp). GDP is to do with the monetary value of production per period in an economy. The difficulty with valuing overproduced (unssold) crap means that it takes a lot of hindsight to measure it.

    What are the causes of a recession? A good way of describing the causes is to go back to my first description of GDP, the monetary transactions. People get nervous and put money under their matress instead of lending it out, that slows down the average speed money can move around the economy.

    The financial crisis was a similar cause - big business stopped lending to other businesses. Those businesses had to pull money back from other expenditures putting large chunks of cash firmly into reverse. The flow on effects meant that a large portion of the big end of town suddenly stopped spending, and slowed down their production. Employees were sacked, they had less cash coming into their pockets, and reduced their demand. This reduces demand for businesses, who reduce supply and lay off more workers.

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