In economics, the term recession describes the reduction of a country’s gross domestic product (GDP) for at least two quarters. The roots of a recession and its true starting point actually rest in the several quarters of positive but slowing growth before the recession cycle really begins. Often in a mild recession the first quarter of negative growth is followed by slight positive growth, then negative growth returns and the recession trend continues. The United States-based National Bureau of Economic Research (NBER) defines economic recession as: “a significant decline in the economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales.” Recession (or contraction) is a natural result of the economic cycle and will adjust for changes in consumer spending and consumption or increasing and decreasing prices of goods and labor.
Causes of recessions
Currency crises
Energy crisis
War
Underconsumption
Overproduction
Financial crisis
A currency crisis, which is also called a balance-of-payments crisis, occurs when the value of a currency changes quickly, undermining its ability to serve as a medium of exchange or a store of value. It is a type of financial crisis and is often associated with a real economic crisis.
An energy crisis is any great bottleneck (or price rise) in the supply of energy resources to an economy. It usually refers to the shortage of oil and additionally to electricity or other natural resources. An energy crisis may be referred to as an oil crisis, petroleum crisis, energy shortage, electricity shortage or electricity crisis.
In underconsumption theory, recessions and stagnation arise due to inadequate consumer demand relative to the amount produced.
Overproduction is the accumulation of unsalable inventories in the hands of businesses. Overproduction is a relative measure, referring to the excess of production over consumption. The tendency for an overproduction of commodities to lead to economic collapse is specific to the capitalist economy.
Effects of recessions
Bankruptcies
Credit crunches
Deflation (or disinflation)
Foreclosures
Unemployment
Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a debtor (“involuntary bankruptcy”) in an effort to recoup a portion of what they are owed or initiate a restructuring.
A credit crunch is a reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates.
In economics, deflation is a persistent decrease in the general price level of goods and services.[1] Deflation occurs when the inflation rate falls below zero percent.
Foreclosure is the legal and professional proceeding in which a mortgagee, or other lien holder, usually a lender, obtains a court ordered termination of a mortgagor’s equitable right of redemption.
Unemployment occurs when a person is available to work and currently seeking work, but the person is without work. The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed
Lets all just hope that we can pull out of this mess and get back to producing the best products and labor in the world.
