Recession Refers to a Contraction of a Business Cycle - Essay Example

Recession refers to a contraction of a business cycle. Generally, during a recession, economic activities slow down. Notable characteristics of a recession include falling of gross domestic product, investment spending, household income, inflation, the housing market, and investment spending. At the same time, the rate of unemployment, as well as bankruptcies, increases. Another notable aspect of a recession is that there is a widespread decrease in the rate of spending or a drop in demand. The reduction in the rate of spending may be caused by various factors such as a financial crisis, supply shock, the emergence of an economic bubble, or a shock in external trade (Timberlake and Richard 16). For a country to increase its national production, appropriate strategies must be undertaken to address the recession. Governments address recession by initiating expansionary macroeconomic policies. These include a reduction in the rate of taxation, expanding the money supply, and increasing government spending. For example, within a short period after President Obama took office, approximately $800 billion was passed by Congress as a way of improving the economy. By increasing government expenditure, investment rises thus creating more jobs and increasing household income and demand. Similarly, a reduction in the rate of taxes ensures that investors are left with adequate funds that they can invest in other areas.

In most cases, the recession is caused by poor government policies. For example, by not initiating a proper rate of taxation or lack of undertaking government projects, the economy is adversely affected leading to recession. In the US, the contraction or expansion of the business cycle is determined by the National Bureau of Economic Research (NBER). NBER indicates the start and the end of a recession but it does not determine depression. Depression on the other hand refers to an extreme recession. Major characteristics of depression include an extensive increase in the level of unemployment, deflation, and low levels of credit. Due to the high levels of unemployment, individuals have low incomes leading to a drastic fall in purchasing power. In the last few years, we have been in a recession. This is based on the slowdown of economic indicators such as the level of employment, investment, and demand although the levels have not reached extreme levels.
As indicated earlier, the recession is addressed by adopting macroeconomic policies that increase the level of investment. My client should therefore start investing now. One of the major advantages of expanding current investments is that there are available resources including a workforce that is skilled to undertake various duties. Read More