While we are all feeling the aftereffects of the current economic recession, many people do not understand precisely what happens during a recession. To learn how to protect your financial future, it is essential to learn all you can about the economic crisis. Keep reading, and the article will explain some key elements to a recession.
How It Is Defined?
To define recession, one must consider the GDP, or gross domestic product, which is the main index used to measure economic health in any country. During a recession, there is a gradual but steady decline in the GDP over a period of several months. When a recession turns into a depression, the GDP has gone down by 10% or more over a period of several years.
The following factors describe what happens during a recession and why. While it is of little comfort to understand why these things occur, it is crucial to educate yourself about the effects, causes, and likely outcomes.
Stock market dips and crashes in anticipation of the recession. Because economists are always carefully studying the market and economic trends, they can predict a recession. In response, the stock market slows with periodic crashes before the rest of us have felt any effects of the coming recession.
Interest rates will start to decline also in response to a market prediction of an impending recession. These cuts in interest rates are intended to stimulate consumer spending and offset the overall effects of an economic recession.
A sharp increase in unemployment and underemployment rates are some of the most challenging effects of a recession for most of us. Once demand slows, the production follows, and companies will typically cut jobs first to cushion the impact on their business.
Once a recession has dug in its heels, there will usually be some government response. For example, many federal governments have answered in part by extending unemployment benefits. Governments will often instate new legislation to provide rebates, tax cuts, and refunds to stimulate the economy.
How to Survive the Recession?