What causes recessions Essay Example | Topics and Well Written Essays - 750 words - 1

What causes recesss - Essay ExampleBy definition, a recession refers to a ii or more consecutive quarters of a general decline in stinting activity gross domestic product (Gwartney, Stroup, Sobel and Macpherson 171). Generally a precursor of a depression, a recession is comparatively little severe but with almost similar dramatic economic effects.While the numerous past recessions show up unique in terms of origin, all are preceded by the Greenspans irrational exuberance that unduly escalates asset values (5). To be sure, there is no one single cause of a recession (Simpson 12-13). Economists are in agreement that while a signifi fagt event in a special(a) sector with notable economic effects may be a trigger, a number of factors ofttimes come into play to magnify economic contraction into a visible catastrophe. Accordingly, the causes are categorized into two the demand side shocks that hit one or various components of the aggregate demand AD and the supply-side shocks that aff ect the short aggregate supply, inflation through cost push, investments and business profits. According to the demand side economics, a recession can be triggered by one or a combination of an economic slump of a study trading partner, which may be a country or region/an economic block such as the EU a credit crunch driven by the inability of the financial institutions to meet lending requirements of households and businesses or conscious cutting back of credit through abnormally raised interest rates on loans a sharp fall or total collapse of crucial asset prices such as office prices and a trade imbalance prompted by an abnormal appreciation of the exchange rate (Tatom 2). On the other(a) hand, the supply recession-causing shocks include increasing international oil prices that subsequently translate into increased cost of takings through the oil costs