Question

What is a recession? What things contribute to recessions? What might we do to counteract a recession? What factors might cause them to end?

Answer 1

A loss of business and consumer confidence causes economic recessions. As confidence is diminishing, so is demand. A downturn in the business cycle is a turning point. This is where the level falls into contraction, followed by irrational exuberance. Loss of trust in investment. Loss of trust causes customers to stop buying and switch into defensive mode. Panic sets in once a critical mass moves towards the exit sign. Slow sales of retail. Businesses are advertising fewer job ads and the economy is generating fewer jobs. In response to falling orders, manufacturers are cutting back— the unemployment rate is rising. The federal government and the central bank need to step in to restore confidence.

High rates of interest. As rates rise, liquidity is reduced. It's the amount of money to spend. The Federal Reserve was the biggest culprit, which often raised interest rates to boost the dollar's value. The Fed boosted stagflation battle prices, triggering the depression of 1980. This did the same to secure the bond between the dollar and the silver, exacerbating the Great Depression. A downturn on the stock market. The sudden loss of trust in investment could trigger a resulting bear market, draining capital from businesses. This is just one of the ways in which a stock market crash could cause a recession.

A country's government is the key player in stopping the recession and transforming the economy into a growth path. A government's primary efforts to counter recession will focus on increasing the circulation of money, controlling inflation, boosting disposable income per capita, reducing the level of debt per capita, managing interest rates, ensuring an environment conducive to business activities and any other support measures for these causes.

To control the prices of sky-high goods, promote imports so that a commodity's value can be decided by the deregulated market. If steel and cement rule high in your country, discourage exports and promote the importation of these products by imposing taxes and abolishing taxes. This should bring the price to a stable level, as is the case with all other commodities. When credit is given easy access at times of high inflation, it will add fuel to fires to raise inflation numbers because people tend to borrow and spend on less important needs than priorities because they have easy access to funds. Therefore, tightening liquidity as one of inflation control measures.