University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Recession in economics
Recession in economics is generally used to refer to a situation at which a nation’s gross domestic product has sustained a negative growth. The use of generally is due to the fact that different economists can describe recession in different ways. The agency responsible for declaring a nation’s economy is at a state of recession is mainly the NBER other wise the National Bureau of Economic Research. It has been argued that the normal recession occurs when the natural growth rate of is less than two percent in average and it lasts virtually over one year.
There have emerged various debates concerning the causes of recessions however, the generally agreed cause of recession is mainly by the actions taken with an aim at controlling the supply of money in the economy. The Federal Reserve is mandated with the responsibility to maintain the balance between money supply, inflation and interest rates. The moment the balance is lost in this equation,the economy can run out of control forcing itself to balance. This is exactly was experienced by many nations in the year 2007.
The Federal Reserve monetary policy injected significant amount of money supply in the money market. This kept the interest rate low while at the same time the rate of inflation continued to rise. This together with relaxed policies that govern the lending practices made borrowing of money easy thus the economic activities became unsustainable and consequently leading to the economy coming to a stand still. Other minor factors that cause the economic recessions could be the presence of wars or the increase of oil prices.
They are however, short term and correct themselves in a faster way. A recession can always be spotted before it occurs. It is possible to oversee an economic scale changing especially in quarters coming before the actual onset. Some these signs may include,high levels of unemployment, decline in stock market, decline in housing prices and lack of foreign investment among many other factors. A global recession is generally a significant fall of economic activity that is spread across the world’s economy.
It should last more than three months and is usually more visible in a nation’s gross domestic product, industrial production, real income in addition to wholesale and retail sales among others. Recessions normally starts immediately after the economy has reached a peak of activities and comes to an end as the economy reaches its trough. It is involved with simultaneous declines and falling of commodity prices otherwise called deflation. Alternatively, it may be a sharp rise of commodity prices also called inflation mostly in a process called stagflation.
A severe recession may be referred to as economic depression. Global recession usually is estimated to occur over a cycle that may last between eight to ten years. It has been said that during the last three decades, the world per capita output growth has been either none or negative. Most of the global nations have been affected by the recession both the developed and the developing nations. If nations like the US, UK and Australia among other nations can feel the pinch,what about the poor countries in the developing world?
The recession of the early year 2000 was mostly felt in western nations. It affected the European Union during the year 2000 and 2001 as well as the US in the year 2002 and year 2003. Countries like Australia and Canada avoided the recession for the better part of the time. Russia began to prosper while Japan continued with its 1990s recession. This recession did not meet the economists by by surprise. They had predicted it following the 1990s boom which had the experiences of both low unemployment and low inflation.
In the United States of America, the recession was took the form of large layoffs and outsourcing in addition to formally highly paid employees who are being coerced into less paid service positions. In answering the Alan Greenspan question, it is actually becoming clear that Europe is not an exception of the global recession. The previous confidence enjoyed by the UK housing market has fallen especially in march to the lowest point in the last three decades. Other countries like Ireland and Spain have housing markets that have fallen over the last decade to the earth.
There is a prediction that these and other nations might possibly experience a wholesale collapse. Once the housing markets more so in eastern Europe as well as Baltic estates are experiencing a significant cooling,the western European have now stopped buying properties places like Estonia, Warsaw and other places. In southern China and in India,the prices are no more surging. The stock markets have experienced sharp down fall after reaching high levels thus people do not have money to buy what they want vivid example is the slowing down of sale of apartments in Hong Kong which is usually a very hyper active market.
Britain have had one of the most robust housing markets in Europe with little of an oversupply than in Spain. According to Alan Greenspan who was the former chairman of Federal Reserve said that global recession might create backlashes that might force nations to retreat from the worldwide markets. This decade’s early years global recession have had little effects on the Eastern and Central Europe’s export markets. The first phase of the financial gloom spared this region which affected the initial public offerings, acquisitions and mergers.
It also experienced a few multinationals scrapping projects and cancelling of planned investments in addition to scaling back the oversees expansion. A study conducted by Vienna Institute of Economic studies in year 2003 showed that the FDI flows to the nations of central Europe were halved in the first three months of year 2002 in spite of their well grounded and looming European Union membership. During the years 1999 to 2003,there were frequent delays in export transactions. Privatization also attracted little interest. It is of no doubt that Europe is headed for a recession.