Tuesday, October 27, 2015

Defining an Economic Recession (part 1 of 2)


The United States has been experiencing economic recession since early of the year 2008.  Latvia, Estonia and Lithuania are also at risk of facing economic recession for the next 12 months.  While Canada, Britain and Japan may  foresee a recession in their economy in the future.

With all this recession risks, ordinary people, could not help but wonder what exactly is an economic recession.

The economic cycle is that when an economy is strong, people are employed and earning.  There will be a great demand for outputs like food, electronics, vehicles and other products.  The production will increase until it exceeds the actual demand.  This would create a rise in prices or inflation.

Salary would then have difficulty accommodating the rising prices of products.  The prices will be too expensive for consumers, that they will stop buying or sales would not increase.  When the demand decreases, companies will lay off workers creating a large population of unemployed work force.

These are several signs of an economic recession. Decline in housing prices, decline in the stock market, and business expansion plans being put on hold are also signs of a recession.

According to the United States National Bureau of Economic Research, it is "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

Economic recession is a contraction phase of the business cycle.  The common definition for recession is that there is a relative decline in a country’s gross domestic product or GDP.  Having a negative real economic growth for two or more successive quarters is also a telltale sign for economic recession.

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