What Happens During A Recession

Recession is defined as a decline in economic activity which lasting for two or more consecutive quarters. Recession affects everyone, directly or indirectly. The impact is in multiple areas like businesses and retail sales, stock markets, real estate and personal finances. It is a difficult time to cope with especially for the average person. Drastic measures have to be taken for survival in these tough times.

Recession and consumers
The gross domestic product growth is negative during a recession. Many firms resort to cost cutting and have to layoff a large number of staff. This leads to increase in rates of unemployment in turn. With less spending power, people have a tendency to save more and spend less. As a result, businesses are forced to reduce prices in order to attract more customers. This eventually leads to increase in spending capacity of consumers and stabilizes the economy.

Recession affects real estate and stock market
A decrease in real estate market is seen during recession. Inability to pay their mortgages might force some home into foreclosure. During recession it is difficult to sell houses, the prices drop considerably and it becomes a buyer’s market. The stock market also gets majorly affected during recession. In order to increase their source of income, people might resort to selling their shares and this in turn triggers a sharp decline in the market.

Government role in recession
During a recession, governments have to adopt policies to increase supply of money and take steps to crease taxation. The bank interest rates are also reduced to attract business and help people borrow money. Decrease in the value of currency attracts foreign businesses which could also help create more opportunities. Companies are able to expand and slowly increase profits. Thus this cyclical process helps to slowly bring the country out of a recession.

Recession impacts individuals
Cost cutting is common during a recession which leads to loss of jobs. As the unemployment rate rises, it becomes difficult to get a job. Even with savings, it is difficult for one-income families to survive. The confidence and spending power of individuals is greatly reduced. In these tough economic times, families might have to take drastic measures such as downsizing or selling their house, and decreasing their expenditure every month, while continually trying to find a new job. Even after the recession is over, it might take a while for individuals to overcome their debts and start afresh.

Leave a Reply