An Explanation as to why Economic Recessions Occur
“In addition to GDP, production data, sales statistics, employment records, inflation rate etc. are also taken into account to make sure the setting in of a recession. ”
Many economists take GDP (Gross Domestic Product) of a country as the determining factor in deciding about the occurrence of an economic recession.
According to them when the turn down in the economic activities of a country leads to a negative GDP, economic recession is said to have taken place.
Such a negative GDP is observed for some months and then it’s pronounced that an economic recession has set in. It may not be a severe one but a recession it surely is, technically speaking.
In addition to GDP, production data, sales statistics, employment records, inflation rate etc. are also taken into account to make sure the setting in of a recession. Ever country keeps on facing recessions but mostly these remain active only for short periods of time.
The stock markets are the most hit by a recession and they drop just on the onset of it. Many a time it has been seen that stock market activity drops to about 50% of its initial value just within the first few weeks of a recession. The economies that are market based have to pass through a very tricky situation.
It is usually believed that government interference in such economies worsens the situation. But, as is natural, governments cannot be just silent onlookers. They adopt certain corrective measure whether these are liked by the business people or not.
These corrective measures are dependent on the type of economy prevailing in a particular country. Governments may take resort to deficit spending or may agree to a policy of tax cuts. Both of these measures are helpful in the generation of money within the affected economy.
Then, there is the question of boosting the confidence of customers and investors. This is an important aspect that is often not tackled well by the governments.
As a matter of fact, in this world characterized by market economies, investors deem market forces to be the supreme authority. They scarcely believe that governments can do much in this regard.
It’s a prejudice that needs to be shunned, as governments have to take care of the common man also. Their policies cannot be framed exclusively for the investors.
Author - DeeKay
Tags - Finance, Economy
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