When the 2007/2008 recession was happening, most people were in doubt about whether a recession is even a real phenomenon. This explains how the most of us are ignorant about the concepts of recession and depression, and assume that these are merely jargons spurted by highbrow economists. Most people were right in saying that they did not feel the recession even though most people were missing on their loans, and were even being chased out of their houses. A part of the problem relates to the concept that people are slow to change the level of their consumption when their income reduces.
Understanding recession requires that a distinction be drawn between it and the concept of depression. In theoretical economics, recession refers to the slope while depression refers to the bottom of curve. Both recession and depression refers to a situation in the economy where people lack money to continue with normal levels of consumption (Karottukunnel 22). While a recession is relatively mild, depression a worse state where almost 80 percent of people lack the income even to purchase basic items such as food. When a recession happens, unemployment increases, and the amount of money used to purchase goods decreases thereby hurting businesses. Although ordinary people can feel the effects of recession, economists empirically determines that a recession is happening by observing the contraction of GDP (Karottukunnel 23). A recession is typically characterized by reduced levels of economic activity in areas such as employment, GDP, and money circulation.
The country experienced recession in 2007 and 2008 because of a financial crisis that led banks to overvalue the amount of assets they had at disposal. In turn, the consumers lacked the money to create an adequate level of demand in the economy. When individuals do not purchase, businesses cannot operate because goods are not sold off, and the traders experience losses instead. Al...
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