Economic Environment of Business
2008MBA035
ECONOMIC ENVIROMENT OF BUSINESS 1
TERM PAPER
QUESTION
Notwithstanding the public policy response to the economic recession, business performance will continue to deteriorate.
Global Overview
Recession can be defined as the reduction of a country’s gross domestic product (GDP) for at least two quarters. According to Wikipedia, it is a period of reduced economic activity, hence, a business cycle contraction. Recession has many attributes that can occur simultaneously. This includes decline in coincident measure of activities such as employment, investment and corporate profits.
It’s worthy to note that there is no commonly accepted definition of global recession. The international monetary fund (IMF) states that a global recession is that which causes a slowdown in global growth to 3%or less. The last period that qualifies for such since 1985 is 2001-2002. At such, the current recession affects a substantial number of nations as at early 2009. US entered a recession at the end of 2007 and many more nations followed suit in 2008.
August 2007, the inability of household to make higher payment on adjustable mortgage resulted in subprime crisis, tight credit standards of US financial institutions due to deteriorating balance sheets further resulted in widespread credit contraction. Loss of consumer confidence and precipitous decline in consumption caused sharp declines in economic activities as demand was generally low. These interplay threaten a recession because of increase in general prices, declining real output growth, weakened financial systems that resulted in bankruptcy and take over , loss of jobs through layoffs and downsizing of firms to reduce cost of operations and crash of stock market. The loss of confidence means inability of financial market to intermediate between the deficit and surplus sectors of the economy.
Fall in private consumption means that consumer confidence is low, and wealth eroded as a result of
ECONOMIC ENVIROMENT OF BUSINESS 1
TERM PAPER
QUESTION
Notwithstanding the public policy response to the economic recession, business performance will continue to deteriorate.
Global Overview
Recession can be defined as the reduction of a country’s gross domestic product (GDP) for at least two quarters. According to Wikipedia, it is a period of reduced economic activity, hence, a business cycle contraction. Recession has many attributes that can occur simultaneously. This includes decline in coincident measure of activities such as employment, investment and corporate profits.
It’s worthy to note that there is no commonly accepted definition of global recession. The international monetary fund (IMF) states that a global recession is that which causes a slowdown in global growth to 3%or less. The last period that qualifies for such since 1985 is 2001-2002. At such, the current recession affects a substantial number of nations as at early 2009. US entered a recession at the end of 2007 and many more nations followed suit in 2008.
August 2007, the inability of household to make higher payment on adjustable mortgage resulted in subprime crisis, tight credit standards of US financial institutions due to deteriorating balance sheets further resulted in widespread credit contraction. Loss of consumer confidence and precipitous decline in consumption caused sharp declines in economic activities as demand was generally low. These interplay threaten a recession because of increase in general prices, declining real output growth, weakened financial systems that resulted in bankruptcy and take over , loss of jobs through layoffs and downsizing of firms to reduce cost of operations and crash of stock market. The loss of confidence means inability of financial market to intermediate between the deficit and surplus sectors of the economy.
Fall in private consumption means that consumer confidence is low, and wealth eroded as a result of