Everybody here in the UK is talking about recession but what exactly is it? Basically, recession is where the Gross Domestic Product (GDB) ceases to grow and starts to recede – thus a recession in growth. A growing economy is very important. More about economic growth
During a recession people stop buying the expensive, luxury items such as houses, cars, high end furniture which affects the businesses producing and selling these items. Companies therefore need to reduce their overheads and lay staff off causing unemployment and higher public spending through benefits. This reduces publis spending even more and a cycle of recession continues.
A Government can try to encourage spending by injecting money into the economy by reducing interest rates.
We have seen a recession early on in 2009 in the UK which if we don’t pull out of soon could quite easily become a depression. I will discuss depressions at a later date.
"A Government can try to encourage spending by injecting money into the economy by reducing interest rates."
ReplyDeleteTrue but of course the UK government cannot do that...
Good Point Chris.
ReplyDeleteIn 1997, the Labour Government set up an
independent Monetary Policy Committee (MPC) at the
Bank of England, and it is this group who now makes
decisions about the rate of interest every month
“independently” of the government.
Good point Jay.
ReplyDeleteI was trying to simplify things but i guess with business studies it's just not that easy.