1. Economy all around the globe goes through the different highs and lows of a business. This results in a change in performance and has a bearing on the way business is conducted. Economies have a business cycle which makes them either in a growth phase or a recession phase. Economies which are in a growth phase are performing excellently and have many opportunities but recession is an area of concern for all world economies. Recession is defined as a situation when the real gross domestic product (GDP) declines for two or more consecutive quarters (Recession, 2011).
This is a situation where the growth rate might be positive and not negative but the GDP decreases consecutively in two quarters. Using the above definition creates doubt as economist and certain statistician doubt the validity of the definition as it ignores the followingIt doesn’t consider the unemployment rate which might highlight a start of a recession and only after it has happened for two quarters it is judged at inflation (Moffat, 2011)The time span is long so if a recession occurs for a period of 10 months then by the time it will be identified the recession gets over thereby it doesn’t help to identify recession clearly (Moffat, 2011)This helps to identify recession by finding out different factors like unemployment rate, industrial production, wholesale sales, retail sales, and real income.
This will help to give a better idea about recession and will help to identify the time when it happens (Moffat, 2011). Recession brings a change in consumer perception and has an effect on the market demand for goods and services. When a consumer expects a recession the demand will fall which is shown in the chart graph below where the quantity demanded has fallen.
The above graph shows that the fear of economic recession reduces demand for goods thereby pushing the demand curve downwards as seen from the movement from Qd1 to Qd2. This further aggravates the problem and the economy becomes more susceptible to recession as there is doubt in the minds of the consumer thereby affecting the normal growth pattern. Recession happens due to various reasons and getting out of this rap requires a lot of work to be done.
Recently, the world witnessed recession due to bank failures. This led to real estate failure which wiped out consumer confidence leading to unemployment, rising inflation, poor industrial production and depleting sales. Economies that get entangled into recession find it difficult to come out of it as gaining back consumer confidence takes time. To ensure that the economy recovers banks need to be more responsible and the government needs to take step to restore back the confidence. This is a time taking process during which the government needs to ensure that steps that are taken doesn’t result in inflation as it could double hurt the economy thereby delaying the recovery process (Recession Restart, 2009).
2. The US economy looks to be in recession. It is definitely the starting of the recessionary phase for the world economy. There are many factors which highlights that the US economy is moving towards recession and has been due to the real estate failure. Some of the factors which highlights that US economy is moving towards recession are as follows