How to avoid a recession

A recession is a fall in real GDP/ negative economic growth. To avoid a recession, the government and monetary authorities need to try and increase aggregate demand (consumer spending, investment, exports). There is no guarantee that they will work. It will depend on the policies and also the causes of the recession. The primary policies will beLoosening of monetary policy – cutting interest rates to reduce cost of borrowing and encourage investment Expansionary fiscal policy – increased government spending financed by borrowing will enable an injection of investment into…


Difference between Recession and Deflation

Readers Question: What is the difference between a recession and deflation? A recession is a period of negative economic growth. The official definition is a decline in output (Real GDP) for two consecutive quarters.   Usually, in a recession, you will get a fall in the inflation rate.From 2010, there is a fall in the rate of inflation. Prices are still rising…

How Long Do Recessions Last?

How Long Do Recessions Last?

Readers Question: How Long do Recessions last? There is no exact answer. Recessions can last for varying time lengths depending on the causes and also the response of governments and consumers.If recessions are caused by a tightening of monetary policy (higher interest rates to reduce inflation) then it tends to be easier to get out of a recession, as the interest rate rise can be reversed and this will boost demand. If the recession is more of a balance sheet recession (bad debts, falling asset prices, bank losses) then the…


Term Deflationary Recession Explained

Readers Question What is meant by the term deflationary recession? A recession is a period of negative economic growth. (official definition is a period of negative economic growth for two consecutive quarters) see: Definition of Recession Deflationary pressures imply a fall in aggregate demand. This leads to a lower rate of growth or a fall in GDP and consequently a lower inflation rate. Strong deflationary pressures may also cause inflation to become negative. i.e. a fall in prices known as deflation. definition of deflation So all recessions have deflationary pressures….


Meaning and Impact of Recession

Readers Question: What does a Recession mean? The definition of a recession is negative economic growth for two consecutive quarters. (see: definition of recession (definition of depression) How does the recession impact: 1) Savings In a recession, private sector savings tend to rise. This is because people become more nervous to spend. The spectre of unemployment encourages people to save more and spend less. However, the rise in private sector saving may be offset by a fall in public sector saving (i.e. government borrowing increases to try and stimulate the…


Solving Current Economic Problems

Readers Question: What should the government do to ’solve’ the problems in the economy at the moment? The most pressing problem facing UK, US and Eurozone is the slowdown in economic activity. Many countries are now in recession (negative growth). Therefore, unemployment is rising, government borrowing is rising and there is the prospect of deflation. Deflation would be very damaging and make it difficult for economies to recover. Faced with this situation, one solution is for the government to increased demand in the economy. Fiscal Policy This is why governments are pursuing expansionary…


Prospects of Recession in the UK

Mervyn King, governor of the Bank of England has said that the UK faces the prospect of a recession, with output falling for at least 1 or 2 quarters. However, on balance he still feels the most likely situation is for the UK to avoid recession; but, growth will remain sluggish in 2009 and 2010. Factors That Could Push the UK into Recession Low Wage Growth. Average real wage growth in the UK has averaged 1%. With rising cost of living, people’s discretionary income is barely increasing. Rising Unemployment. Yesterday saw the first sign…


Why is US in Recession?

Readers Question: Why is US in Recession?   According to the latest statistics provided by the Economist April 24th 2008US economic growth is 2.4% year on year. In the last quarter, growth is 0.6%. This is still a long way off the technical definition of a recession – negative economic growth for two consecutive quarters.Nevertheless people have been predicting that the US will soon enter into recession. This is because 1. Credit Crunch. Banks have lost money in lending sub-prime mortgages, which involved high levels of defaults. It is not just mortgage…