First of all, let us talk about recession. Many people do not know about recession and that’s why they can not understand what exactly happens in recession. It is one or more couple of straight quarters when Gross Domestic Product, mostly called as GDP, turns down continuously. Well, this is like a definition if someone wants to remember in one line. But if we go in depth of it, then first thing we have to consider is GDP and need to understand what GDP is. Total amount of income caused by production of the country in a particular time period, generally a year, is called as GDP of that country. As the definition of recession indicates a continuous decline in GDP for at least one or more quarters, the total income also declines. Let us see what actually happens in recession and how recession causes decline of income.
Recession is a time period when a business cycle which has been grown for the last one or more decades turn down slowly. The demand of goods and services is decreased in this time. Due to the manufacturer and service providing companies start to reduce the number of employees which turns into a higher unemployment.
Since the rate of unemployment is rising, the individual economy declines. As the individual income declines, people would not prefer to buy more things except their needs. Thus the recession affects on the individual economy.
Now let us see how it affects to the industrial economy. During the recession the demand of goods and services goes down. The main reason behind this is inflation. Due to inflation, prices for making goods go high and thus the goods also become more expensive than they were before the time. As the price increases, people do not buy the extra things and turn toward the saving schemes. Thus the demand of goods and services decreases and it affects to the many manufacturers or service providing units. During the recession, many manufacturers or units have to put their shutters down. This way recession also affects to the industrial economy. And at the end it decreases both kinds of income and so there happens a considerable reduction in GDP.
To come out from this situation, the government has to force the banks to decrease their interest rates for different kinds of loans. This will make money cheaper. The companies have to reduce the prices of the goods. It makes the public to buy the goods and thus the cycle gets started again. Thus we can say recession is an outcome of inflation and it affects the economy of the country very badly.
Even the country having a great effect on world-wide economic development is passing through the recession then the other countries also have to bear the effects of recession. The recession is the time-period that always comes. If GDP falls down more than ten percent then the situation is defined as the depression. The depression is more severe than the recession. But both decrease the economy growth for the particular time period.
