Economics for Managers : Assignment
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Added on 2019-11-19
Economics for Managers : Assignment
Added on 2019-11-19
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Running head: ECONOMICS FOR MANAGERS Economics for ManagersName of the StudentName of the UniversityAuthor Note
1ECONOMICS FOR MANAGERS IntroductionAn economy, by nature is expected to be dynamic and deals with the mutual interactionsof the demand and the supply forces existing in the framework. The dynamic stability of anyeconomy depends on the dynamics of these two forces and how they come in agreement to reachan equilibrium state, in the short run as well as in the long run. However, apart from these twoforces, there are other variables, which can cause fluctuations in the economy, giving rise tospecial conditions in the economy for the time being. One such abnormal economic condition isknown as recession (Eaton et al 2016). By the term recession, a temporary economic decline ismeant, when the general economic activities are reduced and the implications are seen in thereduced GDP and GDP growth rate of the concerned economy for that particular period.Recession, however, depending upon the nature and magnitude, can have long term implications(mostly negative) on the concerned economy (Rabie 2013). The essay tries to analyze thephenomenon of Great Recession, which occurred in the United States of America, during thetime period of 2007-2008 and had huge implications on the economy of the country and in theglobal economic scenario as a whole. The essay emphasizes on discussing the causes of thisGreat Recession and analyzing these causes in terms of economic theories and concepts. What is a recession?The term recession, in terms of economics, means an overall slowdown of the economyin terms of the productive, trading and industrial activities, due to a loss of the confidence fromthe consumer as well as producer sides over the economy. This in turn, leads to an overallreduction in aggregated demand, which results in a lowered supply, low wages, employment and
2ECONOMICS FOR MANAGERS low standard of living of the residents of the concerned economy. The negative performance ofthe country in the different economic aspects can be clearly seen in the unimpressive GDPstatistics of the country at that period. However, the declining GDP is the effect of recession andshould not be taken to be one of the factors contributing to it, as is confused to be, because GDPis generally recorded after the initiation of the event (Auerbach and Gorodnichenko 2012).Often, recession, due to its nature of creating negative events in cyclical manner, leads to thecreation of a viscous cycle, which spirally takes the economy towards the path of economicdownturn. The process goes on if the governing bodies and the monetary authorities of theeconomy do not intervene and take abrupt actions to reduce the effects of this economicphenomenon (Allen 2016). In general, there may be many factors, which cumulatively contribute to the initiation ofrecessionary situations in an economy. Few of the important ones are as follows: a) High interest rates prevalence- Existence of an overall high level of interest rate in theeconomy encourages people to save more, which, in turn affects the demand conditions of theeconomy, thereby reducing the supply side activities of the economy eventually and taking theeconomy on the path of initiation of recession in the future periods. b) Crash in the stock market- Recession can also be caused by a sudden loss of confidence of theinvestors, which may result in draining away of capital from the market, slowing down theeconomy (Cynamon, Fazzari and Setterfield 2013). c) House market irregularities- A sudden and long term fall in the prices of the residential assetscan also trigger recession as housings are also seen as a type of asset building. If the prices ofthese assets start to decline, the customers start losing out confidence over the market, thereby
3ECONOMICS FOR MANAGERS leading to foreclosures and an overall slowdown of the investing activities. The problembecomes even more acute in the populous developed countries as a significant share of the totalinvestment amount of these countries is comprised of residential investments, which poses as anavenue of channelizing investment and building up of assets (Danziger, Chavez andCumberworth 2012). Apart from the above mentioned factors, recession can also be caused in a country, due tofactors like wage controls, asset bubbles, crunches in the credit markets and abnormalphenomenon like slowdown due to state of war or huge natural or man-made catastrophe. The Great Recession of the USA: The economy of the United States of America, has been and still is considered to be oneof the strongest economies in the global scenario. The country has significant influence on theglobal economy as much of the global conditions depend on the economic strategies taken by thecountry. However, the more or less stable economy of the country has had its share of turmoiland fluctuations, two of which are of immense implications on the economy. One of these eventsis the Great Depression of 1930s and the other one is the Great Recession, which the countryfaced from 2007 to 2009-2010 (Jenkins et al 2012). According to the data provided by the National Bureau of Economic Research, the USAstarted experiencing the initiation of this recessionary situation from the last quarter (specificallyfrom December) of the year 2007. The recession led to a tremendous backlash in the economy,with the GDP statistics of the country stooping to new lows. The GDP of the country contractedby 51% during that period of time, the rates being the worst the country had experienced since
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