Most economists define a recession as a sudden decline in real gross domestic product (GDP) for three consecutive quarters. However, the media has been leading the public into many misconceptions, causing people to use the word without a clear sense of the definition. As a result, consumer confidence is in a free-fall and many Americans are almost certainly walking into some regrettable investment mistakes. Due to the generally mistaken view that recession automatically means bad investing times in the future, several investors are tending to cash out early. The word “recession,” as it sits undefined is being used incorrectly time after time, and different misconceptions of the word are spreading like a wild fire throughout the public amongst those least educated or unprepared.
Often, without knowing the characteristics of the definition, through the hype of the media, we begin to believe our economy is in a much worse state than it actually is. A majority of Americans who are hearing the term from the media for the first time do not have the slightest idea of how to measure a recession, and in many cases mistake it for a common slowdown incorporated in the business cycle. Many economists cite four phases of the cycle – prosperity, liquidation, depression, and recovery. Those periods of “liquidation” and “depression” are mistaken for a recession, when in reality a recession is a much more severe slowdown.
During a period of “prosperity” a rise in production becomes evident. Employment, wages, and profits increase correspondingly and businesses tend to invest in expanding production. Businesses are liable to run into obstacles that obstruct further expansion leading into period of decay, or “liquidation.” For example, production costs may shoot up, shortages of raw materials may hinder production, interest rates may rise, or prices may increase. Consequently, consumers react to increased prices by buying less. Businesses, then, remedy the consumption declination by reducing their prices. Manufacturers begin to cut back, resulting in workers being laid off, and the “depression” stage is inevitable, leaving businesses in an economic slump. Prices and profits begin to plummet, production cuts back, factory shutdowns occur, unemployment becomes widespread, and the GDP has a tendency to decrease. Does this period sound familiar? The “depression” stage is in progress as we are currently experiencing, the media likes to call it a recession, however it has proven to be nothing more than a phase in the cycle. If and only if the GDP continues to drop for three consecutive quarters will it really be considered a recession.
The Business plan on Solidly Run Business Customers Time
What are some important financial decisions that Business Owners face in a slowing economy? It has been said, 'solidly run small businesses actually hold their own during downturns.' (Mark Vintner, a senior economist with first Union Corporation) While all business owners would like to classify themselves as "solidly Run', Here are some of the thing that I believe warrant consideration by any ...
Another common misconception about the duration of a recession is that it is very lengthy, however we must understand our present economy is nothing like the twenties, we will recover. The average recession will last for less than a year, however we hear of people worried that it will last for the years to come. Some say “the market is going to crash just like in the Great Depression,” causing others to sell their stocks and cash out. We must understand before hitting this economic slump the U.S. has been at its peak with a gradual growing economy for over a decade. Our economy cannot be booming forever, therefore it is not surprising for the market prices to descend. The difference between our present state and the Great Depression is that period of declination will not continue for more than a few quarters. Many economic advisors and analysts have already predicted a state of recovery in the upcoming year.
