The recession is a recession in the economy

The recession is a slowdown or a complete lack of economic growth or a temporary economic slowdown. This is a kind of transition between boom and depression and, according to the classic definition of a recession, it's zero economic growth for 6 months.

What is a recession and why does it arise ?

The recession is a situation in which factories produce fewer products than they did before. When the sale of stores is reduced, and consumers make less purchases. This is a significant reduction in business activity, accompanied by a number of factors that are negative for the state of the economy.

For example, we can consider the recession period caused by the mortgage crisis in the US. It can develop according to this scenario: banking institutions make a decision to write off assets, as they understand that recently they issued a large number of "bad loans". That is, in such a situation, the bank has less funds on its balance sheet than they thought. To solve the problem, banks are tougher procedure for issuing new loans, lay off employees and so on.

The rest of the business in this case lacks working capital, it also has to reduce production and dismiss employees. The recession is growing unemployment and a reduction in the incomes of the population. As a result, personal consumption decreases, which again leads to the fact that the business less sells and reduces purchases from suppliers.

Economic depression

To break this vicious circle, the state should by any means throw in additional money to the economy of the country, reducing the reservation rates, reducing taxes and interest rates. Only in this way the economic recession will not go into unacceptable limits. But at the same time, money that should contribute to economic growth, at the same time, provokes an increase in inflation. But in this situation it is fully justified and justified by the restoration of the economic situation.

Approaches to the definition of a recession

The recession is a general decrease in business activity, global in scope and long enough in time. From structural industry crises, the recession is different in that it covers the entire economy of the country as a whole. It also has nothing to do with the seasonal decline in business activity, as this period is more significant in duration.

The recession is one of the stages of the economy cycle, this phenomenon inevitably follows the period of economic growth. Business activity, as a rule, includes four successive phases: recovery, peak, recession and crisis. Each phase plays its role in the deployment of the business cycle.

It is worth noting that any crisis only strengthens the economic system, albeit at the expense of political and social upheavals. In the process of recession, the weak links in the economy are being weeded out, making room for new ventures. The recession in the economy is disciplined by business and forces to abandon inefficient methods of work. It opens the way for young and promising enterprises using new technologies.