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Recession - Research Paper Example

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First Name M. Last Name University Course Number Date Macroeconomic Principle: Recession Introduction The recent economic report of Pylas and Rising (2013) is related to one of the macroeconomic principles - recession. The report announced the unexpected drop of Germany’s economic output/income…
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Download file to see previous pages... According to Wiegand (2009), recession takes place when a country’s gross domestic product (GDP) “goes down for six months or more” (p. 18). Also, when recession transpires, a series of economic problems will arise, including unemployment, inflation, adjustments of investments, additional credits, declining values for goods and services, cutting out exports, higher interest rates, and dropping of currency. These problems influence the economic performance of the world market, particularly the European Union (EU). The purpose of this paper is to analyze a recent economic report in relation to recession, and its application in the outside world. Recession and its Problems The phenomenon of recession occurs when the economic development of the country decreases to “less than three percent” (Wiegand, 2009, p. 19). It has been illustrated that Germany has a GDP contraction rate of 0.6%, “more than the 0.4% expected for the 4th quarter of 2012” (Pylas & Rising, 2013); the figure shows that the country is nearly in recession, and will be into it if the decline will continue in the following year. Unemployment. In case of Germany’s economic contraction, it is then projected that several establishments will reduce their output due to a lesser demand; hence, the level of unemployment will increase (Pylas & Rising, 2013). Also, the shutting down of businesses will lead to redundancy; in fact, this has been one of the serious problems in EU as shown in figure 1 (“Taking Europe’s Pulse,” 2013). Figure 1: Unemployment Rate in the EU Source: “Taking Europe’s Pulse,” 2013 The figure above shows that the unemployment rate of EU members, such as Greece, Spain, Portugal, and many more, is very high since 2012 compared to other members like Germany. Inflation. Germany’s exporters are also concerned on the set-up that their product became “less competitive in the international marketplace” (Pylas & Rising, 2013). According to Wiegand (2009), in case of inflation, the value of money decreases over time while the “price of commodities increases” (p. 23). The declining economic performance of Germany would conceive inflation in terms of purchasing value. Otherwise stated, the amount of money spent on buying a particular good does not maintain its value as times passes because the price of commodities has been increased. For instance, a 10-euro bill in the year 2000 could buy a lot of stuff compared to a 10-euro bill of today. Hence, inflation brings difficulty to consumers in buying their needs and wants, which will result to merchandise unsold. While inflation is the increase in prices, its opposite--deflation, also brings harm to the economy. Deflation happens when the prices of goods and services plummeted consistently and creates surplus of supply and lesser demand (Wiegand, 2009, p. 24). Foreign exchange market. Several exchange rates are being established in different countries depending on recent trading performances among countries. Their currencies depict the stability of their economic activity. The stability of euro (€) is one of the primary issues that EU members would be highly concerned of considering that they are using the euro as their “single currency” (“One Currency,” n.d.). Frequently, the idea of exchange rates is very confusing; ...Download file to see next pagesRead More
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