Common recession definition

Common recession definition

Recession definition

In recent days it has been mentioned many many times in American TV the term economic recession, that caused some troubles almost all markets in the world. Not only that, The USA is going through some political change too due to this economic policies applied in the past years. It is important to take into account all points of view.

But what is the recession definition?

A recession is a decline of the economy, production, gross domestic product. When an economy, not just stops growing, but has negative growth, a substantial decrease in production, we are facing an economic recession, which if prolonged, is considered a depression occurs. Usually 2 consecutive semesters, or quarters is taken as the deadline to change the situation of that recession definition mentioned.

During a recession, the “prisoner” consumer fears about his economic future, stops spending, it that scenario represents a large block of the society that no longer consumes,… Then a reduced consumption will bring companies left with an inventory that nobody wants to buy, causing the collapse of the business sector, bringing the dismissal of thousands of workers and even the closure of many companies.

The closure of companies, dismissal of workers accrue over the crisis. No one will want to invest or spend more than necessary. Many people can not pay their credit, no one will take new loans so that the financial sector is one of the elements that drives the economy, may also collapse.

When rumors are spread, when people do not believe in your economy, the situation goes from gray to dark very quickly which is very hard to redirect in an economy with a recession definition situation.

Those with the resources to invest, will leave with those resources to another place where their investments are safer, more profitable leaving the country without the precious resources that would help overcome the crisis.

The recession, usually may be accompanied by deflation, as decreasing demand, excess supply of goods and services that few want to buy for fear, which will drive the price down is presented.

crisis-1929-wall-streetCompanies, to get out of their inventories will have to offer them at low prices, working at a loss, which undoubtedly affects its production capacity, and as the production capacity of a country is the sum of all factors and productive elements, the whole country will end up in trouble.

Economic policies can be applied in order to try change the trend. For example bringing the national interest rates down if possible. To allow credit to flow easier. Or lower taxes, what usually the situation does not advise to do.