What Makes a Stagnant Economy

Topics: Recession, Macroeconomics, Economic growth Pages: 5 (1488 words) Published: April 30, 2013
What makes a stagnant economy?
Normally speaking, Stagnation in economy is actually a general slowdown in economic activity over a long period of time, or it is a business cycle contraction. During the time of recession, many of the macroeconomic indicators vary in a similar manor. The production that measured by GDP, investment spending, household incomes, business profits, capacity utilization and the employment fall during the economic recession. Usually at time of recession the government responds by adopting the expansionary macroeconomic policies, like increasing government spending and money supply and decreasing the taxation. Probably when we want to look at the reasons of the economic recession the Politics plays a vital role in that. And generally speaking an administration holds the overall responsibility for the state economy during its ruling. This has caused some sort of disagreements when the recession actually started taking place. Most of the times, in an economic cycle, a downturn can be considered as a consequence of an expansion reaching an unsustainable level. In the year 1981, the recession is thought of having been caused by the tight-money policy affiliated by Paul Volcker, The chairman of Federal Reserve Board. And in the year time of 1960s a famous Economist Walter Heller called the recession a ÒReagan-Volcker-CarterÓ recession. Preventive Measures are usually futile to avoid downturn

It is probably assumed that the government activities have some sort of influences over the presence or over the degree of a recession. Usually economists teach that. Some degree recessions are unavoidable, and that causes are also not so understood. Therefore consequently, the modern administration attempts to take up some steps, which are not agreed upon, to alleviate a recession. More often they are unsuccessful, at preventing the recession. The economists say that, since the year 1854, the U.S. government has encountered thirty two cycles of contractions and expansion. However, from the year 1980 there have been only 8 periods of negative economic growth, and only 4 periods considered recessions: • From July 1981 - continuously for 14 months

• From July 1990 - continuously for 8 months
• From March 2001- continuously for 8 months
• From December 2007- till date
Prime reasons for recession
There are some primary causes of recessions they are as follows; • Currency crisis
• Energy crisis
• War
• Overproduction
• Financial crisis
• Under consumption
Effects of recession
And the Effects of the recessions are considered as follows; • Unemployment
• Foreclosures
• Disinflation
• Bankruptcies
• Credit crunches
Many of the countries have seen the rate of growth of Gross Domestic Product (GDP) decrease, probably attributed to sector price inflation in food and energy and reduced liquidity. These slowdowns include the United Kingdom, Japan, China, Ireland, Canada, New Zealand, India and so many countries within the EEA. In some of the countries, the recessions have been already confirmed by experts, whereas the others are still waiting for the 4th quarter GDP growth data to show 2 consecutive quarters of negative growth. But Australia avoided a technical recession this year 2009, and having a positive growth against the overall global economic downturn.


An economically backward economy is defined as one which makes less progress than normal.[1] USSR leader Gorbachev once said “If you don’t move forward, sooner or later you begin to move backward.”[2] The backwardness model is a theory of economic growth created by Alexander Gerschenkron. The model postulates that the more backward an economy is at the outset of economic development, the more likely certain conditions are to occur. The more backward the economy:

• The more likely intervention by special institutions will be necessary to properly channel physical capital and...
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