Issues That Lead to the Recession Term Paper Example | Topics and Well Written Essays - 2500 words

Issues That Lead to the Recession - Term Paper Example What are the correct investments in a recession and the revised policies and procedures put into operation by the government to combat recession. Thirdly, this report will discuss the impact of the recession and the lessons learnt from it. Definition of Recession â€Å"The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.†(Business†¦.) â€Å"A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. ... With the steep rise in the unemployment levels, the government is obliged to extend unemployment benefits to a wider section of the society. Higher borrowing leads to higher taxes and additional interest payments in the future. As shares turn unattractive, the prices begin to dip. Lower profitability and lower dividends create a depressive mood for the investors and they look out for alternative sources of investment. The fall in share prices continues in anticipation of recessionary trends prolonging. But this is only the initial phase. When recession is at its hardest phase, the developments take a strange turn. In anticipation of economic recovery, share prices begin to recover, as the prudent investor calculates that it is the favorable time to invest from the point of view of long term gains. Falling prices of shares may be due to various other factors as well, not alone recession. The normal reaction to recession is that it should result in a lower inflation rate. The highlight of recession is it reduces demand and wage inflation. The issue to be examined is what economic factors impact the recession hard. The current recession is due to rise in oil prices. The expert opinion about this inflation is, it is bound to reduce demand, will result in price wars, as the firms will make all-out efforts to retain consumers. The scenario of falling investments takes volatile shape and hampers economic growth. The vicious circle begins. The slowdown in the growth rate, with the economy expanding with a slower pace, may result in substantial fall in investment. Fall in employment opportunities is the most feared factor during recession. The demand for labor takes a down turn. Not all sectors are impacted hard in equal measure