Recession

• What is a recession?

  A period of temporary economic decline
• How is a recession generally identified?

  By a fall in GDP in two successive quarters
• What are the demand-side factors that can cause a recession?

  • Decrease in consumer spending
  • Reduction in business investment
  • High interest rates
  • Fiscal policy tightening
• What can lead to a decrease in consumer spending?

  Loss of confidence, high debt, rising unemployment
• Why do businesses reduce spending on capital goods during a recession?

  Due to pessimistic economic forecasts or rising interest rates
• How do high interest rates affect consumer spending?

  They discourage borrowing and spending
• What fiscal policy actions can reduce aggregate demand?

  Tightening government spending and increasing taxes
• What are the supply-side factors that can cause a recession?

  • Supply shocks (e.g., rising commodity prices)
  • Technological changes rendering industries obsolete
• What is an example of a supply shock?

  Sudden increases in prices of key commodities
• How can technological changes lead to a recession?

  By rendering existing industries obsolete
• What external factors can contribute to a recession?

  • Global economic slowdown
  • Financial crises (e.g., bank failures)
• How does a global economic slowdown affect a country?

  It reduces demand for a country’s exports
• What are the economic consequences of a recession?

  High unemployment, decline in GDP, lower investment
• What social consequence can result from a recession?

  Increased poverty rates
• How can a recession affect mental health?

  It can lead to stress and related health issues
• What governmental consequence can arise from a recession?

  Lower tax revenues and increased public debt
• What fiscal policy measures can governments take to reduce a recession?

  • Increased government spending
  • Tax cuts
  • Expanded unemployment benefits
• How can increased government spending help during a recession?

  It stimulates demand through infrastructure projects
• What effect do tax cuts have during a recession?

  They increase disposable income and encourage spending
• How do unemployment benefits support the economy during a recession?

  They help maintain consumer spending
• What monetary policy measures can be taken to reduce a recession?

  • Lowering interest rates
  • Quantitative easing
• How does lowering interest rates help during a recession?

  It encourages consumer spending and business investment
• What is quantitative easing?

  Increasing the money supply by purchasing securities