When it comes to economics and finances in general; a recession is almost immediately considered bad news. But what exactly is recession in its purest and truest essence? Well, technically speaking, it is a kind of contraction in terms of business cycles. Ultimately, it is considered as a general shutdown in a certain country’s economic activity. During these particularly crucial times, there are a lot of economic indicators that may vary or may show up in a similar way.
One of the most vital economic indicators is the Gross Domestic Product. Another one is investment spending. The third one is employment. The fourth one is household incomes. The fifth one is capacity utilization. The sixth one is inflation. And the last one is business profits. The thing that’s similar with all of these economic indicators is that they all fall in the event of an imminent or an on-going recession.
On the other hand, there are two highly reliable telling economic indicators that are on the rise in times of recession: unemployment rates and bankruptcies. These are two highly negative indicators that impact and give out massive damage from an economic standpoint. Suffice to say, they are also the ones that are most apparent during such a dark time.
So perhaps it all boils down to why recessions happen in the first place. The thing is, these so-called recessions happen whenever there is a widespread plummet in spending. This often follows a radical supply shock or as they would put it in economic idioms; it is when the economic bubble bursts. How do governments react to these unprecedented bad happenings? The answer is all in policies. They usually adopt expansionary strategies like increasing the government’s spending, increasing the supply of money, and yes – the decrease of taxes. It may occur simultaneously, but the good thing is, governments nowadays have all the necessary policies set in pre-empting it.
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