Recession

he fear of a recession looms over the United States. • And as the cliche goes, whenever the US sneezes, the world catches a cold. This is evident from the way the Indian markets crashed taking a cue from a probable recession in the US and a global economic slowdown. • Weakening of the American economy is bad news, not just for India, but for the rest of the world too.

What Is Recession ?
• A recession is a contraction phase of the business cycle. • The official agency in charge of declaring that the economy is in a state of recession is the National Bureau of Economic Research (NBER). • They define recession as a "significant decline in economic activity lasting more than a few months“, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. • For this reason, the official designation of recession may not come until after we are in a recession for six months or even longer.

• Some economists also suggest that a recession occurs when the natural growth rate in GDP is less than the average of 2%. Typically, a normal economic recession lasts for approximately 1 year. • American newspapers often quote the rule of thumb that a recession occurs when real gross domestic product (GDP) growth is negative for two or more consecutive quarters. This measure fails to register several official (NBER defined) US recessions

What Causes Recession ?
• An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. • An economy typically expands for 610 years and tends to go into a recession for about six months to 2 years. • A recession normally takes place when consumers lose confidence in the growth of the economy and

• This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. • Investors spend less as they fear stocks values will fall and thus stock markets fall on... [continues]

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