A recession is a contraction of the business cycle that occurs when there is a general decrease in economic activity. The decline is generally accompanied by a decrease in spending. This article focuses on the causes of a recession. It also addresses the costs of living and the escalating unemployment rate. To avoid becoming a victim of an economic recession, it is important to know your economic facts.
Business cycle contraction
A business cycle contraction is a condition when an economy is not generating enough economic activity to keep up with demand. This situation is called an economic recession and it often leads to widespread declines in spending. A recession can be triggered by a number of factors, including a financial crisis, an adverse supply shock, or large-scale natural disaster. In such a case, governments usually respond with expansionary macroeconomic policies, including increased government spending and reduced taxation.
During the expansion phase of a business cycle, the economy experiences a general increase in positive economic indicators, including employment, income, output, wages, and profits. During this stage, debtors are generally able to repay their debts. The velocity of money supply is high, and investment is high. As long as economic conditions are favorable, the cycle continues to expand.
Demand-supply network disbalance
The demand-supply network is often mismatched in times of economic recession. When demand is higher than supply, backlogs grow and supply becomes insufficient. This can result in backlogs and bottlenecks. A backlog is a large amount of inventory that hasn’t been shipped.
As a result, the demand-supply network becomes inefficient. In recent years, this has been a problem in supply chains across the world. One of the main causes is a pandemic that scrambled the world’s supply patterns. Many complex production networks rely on predictable global supply patterns. However, when the United States reopened its borders last summer, demand for imported goods skyrocketed. At the same time, exports from major exporting countries were shut down. The resulting dwindling of domestic demand has led to a major imbalance in shipping container flows.
Increased unemployment rates
Unemployment rates increased from 2007 to 2010, particularly among those without a college degree. Unemployment rates for those aged 25-54 years and those with at least an associate’s degree peaked at 15.8 percent and 7.4 percent, respectively, in October 2009. In contrast, the unemployment rate for young people aged 16 to 24 years rose from 10.8 percent in November 2007 to 19.5 percent in April 2010.
As a result of the recession, the number of long-term unemployed increased. The long-term rate doubled from 2.6 percent in April 2007 to 483,000 in December 2017. The number of long-term unemployed has been declining since then, although the long-term unemployment rate has only recently returned to the prerecession levels.
Cost of living crisis
The cost of living crisis is a global phenomenon that is impacting many people in many countries. It has sparked widespread union activism, which is helping explain the rise in industrial action in the public sector. However, this crisis is not affecting everyone equally. It will have a much bigger impact on those living in deprived areas, older adults, single parents, people with disabilities, and people of minority ethnic backgrounds.
The UK is experiencing its worst inflation since the 1970s, owing to high energy prices, the aftermath of the Covid-19 pandemic, and the ongoing Brexit disputes. Inflation and limited wage growth are putting a strain on consumers’ disposable incomes. These factors combined with the high cost of transport and energy have pushed down consumer confidence. The Bank of England is attempting to respond to the crisis by increasing interest rates, but is constrained by fears of an imminent recession. Meanwhile, consumer confidence remains low despite measures taken by government to support the economy.
Iraqi invasion of Kuwait
The Iraqi invasion of Kuwait took place in 1990. The US led the international coalition to fight the invasion and impose economic sanctions on Iraq. The United Nations Security Council also passed a resolution calling for the withdrawal of Iraqi forces from Kuwait. In addition, the Council also declared Iraq’s annexation of Kuwait null and void. Despite international pressure, however, Iraq continued its invasion of Kuwait, looting and destroying the country’s infrastructure.
The United States and international community were fully aware of the threats by Saddam Hussein to invade Kuwait. The Iraqi Republican Guard and Special Forces moved toward Kuwait City and the palaces of the Crown Prince and Emir. Despite widespread resistance, Iraqi forces eventually forced the Kuwaiti royal family to flee to Saudi Arabia and appealed to the international community for help.
Interest rate hikes
Interest rate hikes during an economic recession aren’t a particularly good idea, as they can lead to a corresponding slowdown in the economy. Increasing interest rates can also lead to a reduction in demand for goods, thereby reducing inflation. Nevertheless, economists are worried that rate hikes could cause a full-blown recession if they’re carried out too quickly. Although Fed Chair Jerome Powell has acknowledged the risks of rate hikes, he has insisted that his commitment to the two percent target is ‘unconditional’.
Although lags between interest rate hikes and output declines are hard to measure due to volatility, they appear to lie between the first and second quarters.
Supply chain disruptions
While many companies may not think about supply chain disruptions during an economic downturn, these events can have serious consequences for a company. Unavailability of critical supply chain inputs can halt production and shut down revenue. This can happen rapidly, with ripple effects through multiple supply chains. The full impact may not become apparent for months. Fortunately, the Federal government has introduced several policies to minimize the impact of short-term disruptions.
The most significant factor that triggers supply chain disruptions is the surge in demand for physical goods. This has occurred primarily due to record stimulus programs and a sharp shift in consumer spending from services to consumer durables. Once demand re-stabilizes, the supply chain will begin to normalize and movement of goods will begin to return to normal. Fortunately, most industries should begin to recover by the end of the year.
