Recession And Depression

Running head: RECESSION AND DEPRESSION 1

Recession and Depression

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RECESSION AND DEPRESSION 2

Recession and Depression

There are many influences that affect business environments today. Periods of

economic downfall have severe repercussions on the economy. The government, businesses,

and individuals play key roles in production and distribution of goods and services; therefore,

challenges that disrupt the cycle lead to undesirable imbalances between demand and supply.

Terms like depression and recession explain business cycles and their influences on spending

habits for specific periods of time. Companies should invest in understanding the impacts and

consequences of recession and depression, to improve their ability to respond to the changes.

The term recession describes an economic downfall whereby activity dramatically

reduces. During a recession, the Gross Domestic Product and income figures significantly

mitigate for an undefined period. Symptoms of an economic recession include reduced

employment rates, reduced production and distribution of products and services in industries.

A more accurate description of recession indicates periods in a business cycle involving

extended troughs with economic activity declining for up to 18 months. During a recession,

capitalist structures usually increase the supply of money to the general population. Through

reducing interest rates, governments attempt to improve economic activity.

Since business cycles can be described through troughs and peaks, the term

depression indicates a more severe state of decline in economic activity characterized by a

period extending beyond one business cycle. Depression describes a period whereby national

economies are unable to recover from the decline in economic activity. During a depression,

the purchasing power of goods and services fall short of the ability to produce the value. It

explores a sustained period of economic crisis. The last depression witnessed in the United

States was in the 1930’s.

One of the main differences between a depression and a recession is about GDP

figures. A recession is usually indicated by a period lasting about two-quarters of GDP

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lifeline whereby there is a steady decline in economic activity. A depression suggests a 10

percent reduction in the Gross Domestic Product of a nation. A Depression can also be

described as a sustained recession whereby there is an inability to recover the buying power

in an economy.

Businesses and individuals ought to have measures that act as mitigation strategies in

the event of undesirable economic environments. Periods of a recession can be challenging to

assess and be ready for, but there should be policies employed by corporations and small-

scale business to reduce the negative impacts. Reducing consumer spending fuels the drag in

economic activity but it is a crucial requirement for individuals as spending on only necessary

items enables them to increase savings. Governments attempt to intervene through improving

employment rates by spending tax money on state-funded projects that aim to increase

economic activity. Another measure of government lies in enhancing consumer buying power

through reducing the taxes imposed on commodities.

Deregulation enables the reduction in pricing of goods and services while spending

cuts on the federal budget have been used to intervene slow economic periods in the United

States economy. The National Bureau of Economic Research indicates that there have been

32 recessions in the United States since the 1850's. The average period for a downturn in the

country lasted approximately ten months while the shortest period of recession went for six

months (Kahler & Lake, 2013). The Great Depression occurred in the 1930's and is

characterized by two depressions that occurred within ten years. The first one occurred in

1929 and ended in 1933 while the second one happened four years later.

Inflation is one of the significant influences that lead to a recession. Since rise is

described by an increase in the prices for goods and services, consumers have a lower

purchasing power forcing them to spend on commodities that are considered significant.

Leisure services and products are sacrificed. Some of the causes of inflation include energy

RECESSION AND DEPRESSION 4

costs and national debts. An increase in energy costs leads to higher costs of production that

are passed on to the consumer in pricing incentives. National debt burdens can be passed on

to the general public reducing the consumer purchasing power.

Tax rates affect the circulation of currency as reduced tax rates encourage spending

patterns. Spending increases in environments where tax rates are reduced. Governments

develop tax policies to fund state projects and sometimes to reduce the burden on citizens. An

increase in tax figures can be introduced to a specific segment of the economy such as on

income levels of various classes of the economy and products such as cigarette brands. The

main reason governments increase tax rates is to fund long-term projects that are considered

vital for the nation's Gross Domestic Product. Taking the United States as a case example, the

policies on state revenue imposed by President Obama have a distinctive contradiction to the

ones imposed by Ronald Reagan while he was in office.

An economy grows once a desirable balance exists between the production incentives

and consumption incentives in goods and services. A slowdown in economic activity may be

affected by market forces forcing unemployment figures to rise. Products and services that

are considered as luxuries by the greater population have a declined demand since consumers

spend less on the items. The businesses supplying the products and services take measures

such as layoffs and pay cuts to survive and make a profit. Unemployment rates in a recession

may be up to 11% while unemployment perspectives in depressions involve indicators such

as 25% (Sufi & Mian, 2014). Naturally, a rise in unemployment figures stirs additional

challenges.

During recessions and depressions, consumer perception plays a vital role in supply

and demand controls. Consumer perception explores the attitudes posed by consumers, and

since knowledge defines spending habits, a fall in Gross Domestic Product imposes several

undesirable characteristics such as fear. Fear during slow economic durations may lead to

RECESSION AND DEPRESSION 5

consumers cutting their spending patterns, a measure that leads to an additional decline in

economic activity. As the balance between production and supply of goods and services

continues to be disrupted, the consequences of the economic downturn worsened.

Asset values decline in recessions and depressions due to stakeholders doubt’s that

affect new investment opportunities. Though depressions have numerous undesirable effects,

there are investment opportunities presented in the reduced value placed on assets. Low

interests imposed by governments serve as opportunities for spending on industries that are

believed to display growth potential. Periods of economic downfall enable consumers to be

disciplined in financial expenditure allowing them to live within their means.

Recessions and Depressions are characterized by periods of economic downfall, and

even though the repercussion and recovery processes can be brutal, there are strategies

imposed to improve the balance between production and consumption. Consumer perception

is a challenging factor that affects buying figures since aspects like fear significantly advance

slowdowns in economic periods.

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References

Sufi, A., & Mian, A. (2014). House of debt. How they (and you) caused the Great Recession,

and how we can prevent it from happening again. Chicago: University of Chicago

Press.

Kahler, M., & Lake, D. A. (2013). Politics in the new hard times: The great recession in

comparative perspective. Ithaca, London: Cornell University Press.

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