Although economists believe that recessions typically begin

Although economists believe that recessions typically begin as slumps in investment spending , they also believe that consumer spending eventually slumps during a recession. Explain why? Some economists thinks the best way to help African countries is for wealthier countries to provide more founds for basic infrastructure. Others think this policy will have no long-run effect unless African countries have the financial and political means to maintain this infrastructure. What policies would you suggest?

Solution

Answer1: Statement is absolutely correct. Recession is not only caused by slumps in investment but also causes investments ot slump as investors lose confidence in market. The downside of this economic fluctuation is that your business will become unpredictable.

At times, you will find that customers have vanished into thin air - while during other times, you might think that you experiencing a sales boom.

It pays to have a cool and calm head during such fluctuating periods. During a recession, interest rates could come down; and in case you need to apply for a loan, then you may not be faced with high interest rates.The only problem is, since there will be a liquidity crunch in the monetary markets, you could have a tough time qualifying for a loan as lenders\' qualifying standards go invariably higher. A recession could induce the stock markets and property markets to fall drastically. This could offer you a chance to invest in stocks or property due to lower prices. And once the economy moves back into the boom cycle, then your investments will be worth quite a lot more. As inflation eats into the pockets of your employees, they could ask for higher salaries in order for them to maintain their lifestyles. You might then have to let go inefficient employees in order to maintain your payroll at the same level.

Economic Recession Definition

Economic recession is a period of general economic decline and is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. Generally, a recession is less severe than a depression. The blame for a recession generally falls on the federal leadership, often either the president himself, the head of the Federal Reserve, or the entire administration.

Factors that Cause Recessions

High interest rates are a cause of recession because they limit liquidity, or the amount of money available to invest.

Another factor is increased inflation. Inflation refers to a general rise in the prices of goods and services over a period of time. As inflation increases, the percentage of goods and services that can be purchased with the same amount of money decreases.

Reduced consumer confidence is another factor that can cause a recession. If consumers believe the economy is bad, they are less likely to spend money. Consumer confidence is psychological but can have a real impact on any economy.

Reduced real wages, another factor, refers to wages that have been adjusted for inflation. Falling real wages means that a worker\'s paycheck is not keeping up with inflation. The worker might be making the same amount of money, but his purchasing power has been reduced.

Recessions and Gross Domestic Product

An economic recession is typically defined as a decline in gross domestic product (GDP) for two or more consecutive quarters. GDP is the market value of all goods and services produced within a country in a given period of time. An example of one type of GDP would be the value of all the automobiles produced within the United States for one year. GDP only takes into account new products that have been manufactured. Therefore, if a pre-owned car lot were selling pre-owned cars, they would not be included in the GDP calculation.

Answer2: In my opinion, wealthier countries should make an effort to uplift level fo human capital in these countries and alliviate curruption from these countires. then these countries can not only develop physical infrastructure but can also maintain them. All wealthy nations may adopt 2 lac kids each from these nation. Spend on their health and education and then send them back to their home countries so that they can do some good work there. But what is actually happening. even those who get good education rush ot developed countries.

Physical infrastruture is not created rather funds are taken in the name of infrastructure from wealthier nations and international organizations. If the amount of donations and grants that India is getting is spent properly, within few years, India can be a developed country but problem lied with curruption and ineffective government which must be solved first.