Why Does A Recession Occur?


5 Answers

Steven Cowan Profile
Steven Cowan answered
Unless you have been living in a cave high up in the mountains somewhere, you will know that the economy has entered into a recession.

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When a country goes into recession, it means its economy is declining; there is a decline in its gross domestic product, or GDP. When a considerable portion of the population is in work, the economy will be strong. Demand for goods will be strong. But this demand will escalate until the availability of goods cannot keep up. This means an increase in costs, which is called inflation. The cost of goods goes up and therefore wages need to go up too. As employment costs go up, so do the costs of everything else. Costs become too high and consumers have to stop buying as much. Demands are reduced and companies start to let go of labour. As demands go into decline, so do the cost of goods – thus the economy goes into a recession. This is tackled by companies reducing the cost of their goods to encourage demand again. The demand will begin to escalate once more and the process starts all over again. Generally speaking a country’s GDP should decline or two full quarters before the economy is declared to be in recession. A 1.5% increase in unemployment over the course of a year is considered a key indication of a recession. A recession that lasts up to a few years is known as an economic depression. Sometimes massive drops in the stock market have been followed by a recession; some believe this is one way to predict it. This is referred to as a stock market ‘crash’. A decline in the property market can also predict a recession. Recessions can be triggered by a change in a currency’s value, a rise in energy costs due to shortage, the outbreak of war, and an excess of supply which leads to companies letting go of labour.

The effects of a recession or economic depression can include people and companies going bankrupt due to the obvious financial disadvantages; a credit crunch – in which the availability of loans in greatly reduced; deflation (a reduce in the cost of goods); foreclosure – in which an owner is forced to give up their property; and unemployment, obviously. In the current recession, effects such as lack of spending and unemployment are worse than they have been in 20 years. Governments tackle recessions by increasing their spending and reducing taxes, but considering the severity of our current circumstances it could take a long time for the economy to recover. Property values, pensions and other important investments have been hard-hit. I think it’s safe to say that most people in employment are wondering if they’ll be keeping their jobs. Around 2.6 million jobs were lost in the United States in 2008. Recessions are normal and occur frequently within the business cycle. But if the recession as we know it carries on like it is, we are likely to be heading for an economic depression.
Aamir Riaz Profile
Aamir Riaz answered
We might say that when business goes into a decline, a really bad decline, we have a depression. When the decline is not so great, we have a recession. A recession is sort of minor depression.

A depression is a period of time in a country's history when most business is bad. It affects all kind of people, from bankers to labourers to storekeepers. Workers lose their jobs in the factories. Sales of goods decline as a result of this particular condition. The entire economy suffers in depression.

In the past 150 years, people have come to realize that business activity moves through a series of good times and bad times. The movements are known are the business cycles. For a while there are good times. Business flourishes, people are fairly well off. Then once in a while something goes wrong, the business goes into a decline. After a while, business gets better and the cycle starts all over again.

No one is sure exactly what causes recession or depression. There is no single explanation that is accepted by all economists. And while governments and businesses take various steps to end recessions and depressions, there is still no one sure way of doing it.
Ellie Hoe Profile
Ellie Hoe answered
The current economic situation all over the world has raised the question of "why does the recession occur? Basically recession is the period during which the economy faces the negative growth. In other words, recession is the fall in National output. According to economists, recession is not an immediate process but it caused because of various reasons. Some of the reasons because of which recession is caused include lower incomes, increasing inflation, increasing unemployment, enhancing gap between government revenues and expenses because it leads to high government borrowing, decreasing real estate values, falling businesses and consumer confidence. Therefore, recession can cause because of the worsening of all these factors.
Anonymous Profile
Anonymous answered
Recession means decrease in the employment rate , investment rate and profit rate of the economy.
If the recession period increase then this will be called depression.

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