Causes of Economic Recessions
For centuries, economists have been debating to explain, understand, and find solutions about the causes of the economic recession. There are many causes of Economic Recessions.
Keep reading to find everything you need to know about the causes of recessions.
What is a recession?
A recession befalls when a country is affected by a negative impact. A harmful disturbance such as a tsunami can lead to the unbalancing between the supply and demand of a nation.
There is usually non-conformity between:
- how many good people want to buy
- how many products or services a manufacturer can provide
- the price of services and goods sold
All these factors stimulate an economic decline in a country.
Additionally, a great example can be, millennium years ago, British people had been manufacturing bronze jewellery and tools. When the bronze value declined drastically, this has caused an economic crisis at that time and what is called a recession today.
A recession can last for months in countries where there has been a mild decline in economic activity. But a recession can also last for years in countries where they have been a significant impact such as a bomb blast or earthquake.
Causes of an economic recession?
A country’s economic value is affiliated with supply and demand of products or services which consists of inflation and interest rates.
Inflation occurs when the price of the goods and services are increasing, which leads to the value of money decreasing. Little inflation encourages more economic activity and is not necessarily a harmful impact on a country.
However, high inflation causes enormous complications for the economy of a country that can eventually lead to a recession.
Interest rates are the loans that companies or people take and repay on an annual term. The repayment rate consists of a yearly percentage that is added to the loan amount.
Furthermore, some companies can afford to borrow more money than they use to invest in supplementary projects. This type of loan usually consists of low-interest rates.
Meanwhile, if loans consist of high-interest rates, it increases the costs for both the producers and the consumers. Consequently, high-interest rates lead to slow economic activity which can eventually lead to a recession.
It is more problematic to deal with a recession in modern life as the current markets are more complicated to navigate. However, whenever a recession occurs, this incredibly helps a country to anticipate and respond to any potential recession. Thanks for reading.