Definition of Economic Recession

The economic reality is changing and is subject to cycles of growth or decline. Terms such as crisis, recession, slowdown or depression are often used as equivalent, but in reality they are different concepts.

First of all, this idea understands that the economic activity it is ceasing to grow. This circumstance translates into the lack of creation of job. At the same time, this means other things: companies with a lower capacity to sell their products, a state that it collects less taxes and that society as a whole has fewer options to get ahead or maintain its job.

In macroeconomic terms, recession is the global decrease in the set of economic activities in a country

One way to measure this reality is through the real Gross Domestic Product over a prolonged period.

The main feature of any recession is the decrease in most economic variables: production of goods and services, investments public and private and the decline in inflation (as the decrease in demand raw materials, product prices tend to decline).

Expansion is the antagonistic idea of ​​recession. Both circumstances are absolutely normal within the cycles of the market economy.

The last great recession worldwide

When the banking sector in the United States flooded the market with packages garbage many of the investors who had bought these products went bankrupt. The first consequence was that the banks stopped granting credit and a double reaction took place: a general paralysis of the economy and an increase in unemployment rates. Obviously, tax collection decreased and, in parallel, there was an increase in the foreign debt of the affected nations.

Do not confuse recession with crisis

When talking about a crisis in the capitalist system, it is also necessary to provide some basic references and definitions. Thus, there is an economic crisis when there is a significant break within a cycle. These periods have the following general characteristics:

1) a low saving capacity to maintain investments,

2) a lower supply of products that is usually accompanied by a rise in prices,

3) decreased banking capacity to offer credit,

4) economic bubbles in some sector,

5) situations of hyperinflation in contexts of social unrest and

6) general instability in the markets.

Fotolia photos: Rogatnev / ArtThailand

Issues in Economic Recession