Free «The Recession» Essay Sample

A recession can be explained as a significant fall in a country’s economic activity observed in a quarter a year as seen in real personal incomes, non-farm payrolls, industrial production, wholesale and retail sales. It is a decline in GDP in two or three consecutive quarters. The most recent recession is the one for 2008 and, it surprised the whole world (Tatom 2009).

CAUSES OF THE RECENT RECESSION

Several theories had been advanced explaining the causes of the recession. First, over the last decade, the financial sector has grown in size and complexity. Improvements in finances have separated the financial and real sector to the detriment of economic stability. Secondly, the boom and busts arise from true uncertainty rather than statistical risk hence economist always factor in the uncertainty when analyzing the economy. Financial economists face the mammoth task of making the risks more lucid by finding techniques of ascertaining the value and audit them. Thirdly, higher uptake of credit by consumers and businessmen result in accumulation of debt (Foldvary 2008).

Debt repayment also diminishes disposable income as this in turn diminishes cumulative demand.  Large debt makes recession adverse especially with the skyrocketing ratios of leverage. Fourthly, a lack of monetary policies that account for inflation of assets, due to the fact that it is difficult convincing people to discard speculation of prices of real estate and stock exchange markets to plummet (Post 2008).

The Beginning Of The Recession. The United States succumbed to the recession towards the end of the year 2007. Other countries also had been drawn into recession during the year 2008. The recession resulted in a drop in private consumption for over nearly two decades.

The End Of The Recession. In June 2009, the recession was officially announced to have ended by the body governing economic research, the National Bureau of Economic Research (NBER). This announcement had been made in September 20, 2010. Global outbreak is still in Africa and India is experiencing an economic slowdown (Amadeo 2011).

Comparisons Of This Recent Recession To The Great Depression. Both the recession and depression led to a high number of unemployment, a fall in the industrial production, house production dropped drastically, and many banks went out of business (Toskano 2010). Investors bailed out of the stock market. Business and construction work slumped. There were massive layoffs as debtors’ defaulted payments. There was massive withdrawal of deposits also the federal bank failed to provide emergency funding to smaller banks to cut on panic attacks.

CONCLUSION

The recent economic recession was hence a big blow to the world’s economy and one to learn from to avoid subsequent ones.