Questions and Answers concerning recession
Many industries are downsizing or simply going out of business. Thousands of people are finding themselves with either reduced hours, reduced wages or simply without a job. You may hear the terms “economic recession” tossed around a lot by the media and politicians but what does that really mean to you. It is obvious that the world is experiencing some hard times, especially the United States, so gathering all the information you can about recessions is absolutely crucial. This article will cover some of the basics regarding recessions. It can answer many of your questions and give you a general knowledge about what a recession is and how you can better prepare yourself for the times ahead. Don’t count on a quick income shortcut to bail you out. However, sometimes just knowing what is happening with the economy can give you peace of mind that eventually it will end and things will get better.
What is the difference between an economic recession and a depression?
Technically a depression is a more extreme form of an economic recession. But there are differences. The first is that a depression will last much longer. Other differences are that there will be a higher rate of bankruptcies in both the private and public sector, the trade and commerce will be reduced and the currency of the country will devalue. During a depression you will often see prices for goods either fall significantly or become quite higher as businesses try to entice customers in to buy goods. Often they have to raise the prices of goods in order to be able to just break even. But unfortunately in a depression many people are very limited on credit and some simply do not have the money for items that they once did.
How can the government help change an economic recession?
This question is where it can get tricky and very opinionated. It really all depends on which theory or economic school policymakers believe in. Each one is very different and takes a different stance on fixing the economy. Monetarists believe that the government should use an expansionary monetary policy whereas the Keynesians will say that the government needs to spend more because they believe it will help introduce more money into the business system which in turn will employ more people. Supply-side economists think that tax cuts will help businesses and then you have the Laissez-faire individuals who say that the government should do nothing at all because natural market forces are at work and that the economy will right itself over time.
Is the United States considered to be in an economic recession right now and if so, when was the last time?
Yes, the United States is now considered to be in an economic recession. But it has not been the first time nor will it be the last time. Since 1854 there have been 32 economic recessions. The last one occurred between March 2001 and November 2001 which only lasted 8 months. Prior to this recession, since the 1980’s, there has only been one that has lasted longer than 8 months and that occurred during July 1981 and lasted until November 1982. So far the recession the United States is in right now has lasted 20 months. It started in December of 2007 and so far economists have not given a clear date that they expect it to end.
What are the effects of an economic recession on the average consumer?
The very first effects that you see are in regards to credit. As the price of things rise, more people will turn to credit. Then you will often see jobs being cut, moved overseas or people having their earnings cut. That means that they are no longer able to afford their credit payments which can lead to loss of earnings by the credit companies. More people will see that it is harder to obtain credit due to those that have been forced to declare bankruptcy. People will have to start tightening their belts just so they can pay for their basic necessities. And as businesses lose more customers this means they will have to start laying off more people. As you can see it is a vicious cycle.
