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Recession in the economy - Essay Example

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The present essay under the title "Recession in the economy" deals with the phenomenon of recession. It is mentioned here that a recession is a period in an economy when there are reduced economic activities majorly due to a crisis in world issues. …
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Recession in the economy
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Introduction
A recession is a period in an economy when there are reduced economic activities majorly due to a crisis in world issues. For instance, the 2008 economic crisis which led to negative growth in countries leading to the little motivation of the public on various economic sectors. The period is characterized by low consumption patterns since the general population has little to spend or the prices of the standard commodities are high (Auerbach, Alan and Yuriy,pg 12). Investments are significantly reduced while unemployment are all time high in the respective countries. Hence, countries are expected to come up with various macro and microeconomic policies that spur positive growth so that their economies can recover from the menace. Such is the case in Poland if they want to redeem the situation.
Consumption forms a critical development criterion in any economy and the state must find measures to spur the vice. The government should first reduce taxes on the basic goods and services as it would reduce the prices of the commodities. Consumers will increase the amount of consumption bundles and have an extra income that they can spend on other goods. As a result, the consumption patterns increases that brings more money to manufacturers that they can invest and spur growth in the country. Another measure is by the Poland government to provide subsidies to the producers. The manufacturers cost of operations will be reduced hence making cheaper commodities (Auerbach, Alan and Yuriy,pg 15). This policy will translate into low prices of goods and services in the market that will reduce inflation. High consumption results in more sales that lead to high revenues. The firms can hence invest the excess income making them expand and, as a result, hire more workers that reduce unemployment in the economy.
Through the central bank of the country, the benchmark lending interest for loans should be reduced to commercial banks. The reduced mortgage rates would be passed to consumers and investments in the form of reduced lending by the commercial bank. More persons and firms would acquire the loan services that they invest in major parts of the country. The policy is necessary because the interest rate is inversely related to investments levels. The higher the interest rate, the lower the investment and the opposite are right (Auerbach, Alan and Yuriy,pg 18). Therefore, due to low rates, investors will expand their production that increases the level of output within the economy. The increased production makes the gross domestic products to raise that makes the country have favorable trade balance with her business partners increasing economic growth in the country.
Nonetheless, unemployment and inflation are usually in an opposite direction as noted by the Philips curve that shows that they are inversely related. 0.9% increase is acceptable up to 2% in the Poland economy. Hence, due to low prices in the economy as a result of the economic policies discussed above and the general increase in production, the spending in the economy will increase by a significant amount. Inflation thus increases due to excess money in the economy while firms will produce more than expected (Auerbach, Alan and Yuriy,pg 13). More production increases workers employment that will reduce the level of unemployment of 9% to approximately 6% but still maintains the inflation as required in the economy.
Conclusion
Any country will experience a recession the response is what matters. Poland should abide by the locals since they form a majority of the spending groups of the country. Motivating these individuals helps spur the economy and any major policies should be targeted at them before international measures. On the other hand, a lower response may result in depression that may cause harm to the growth in the country.
Work cited
Auerbach, Alan J., and Yuriy Gorodnichenko. Fiscal multipliers in recession and expansion. No. w17447. National Bureau of Economic Research, 2011. Read More
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