Definition of Recession
Recession is a time period of general economic decline, period during which GDP of a country or countries decline. During recession unemployment increases while stock market and real estate declines. If a recession continues for long time period than it is termed as depression which is a worse form of recession.
Explanation of Recession
There are a number of factors which lead to recession:
· Increase in interest rates or high interest rates lead to recession because when interest rates rise, people have less money to invest and liquidity of assets decline.
· Rise in prices of goods and services are termed as inflation. Inflation is another cause of recession i.e. with increase in inflation the buying power of people decrease or the amount of goods/services that can be bought for certain amount of money declines.
· Consumer’s trust/confidence in an economy can cause recession. For example if consumers think that economy is bad and they might face loss on their investment then, they are less likely to spend money. Hence affecting the economy
· The decline in real wages can also cause recession because when real wages decrease so does the buying power of people