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What led to recession

business Updated: Sep 14, 2009 16:42 IST

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In economics, recession refers to a general slowdown in economic activity over a long period of time. It also includes a series of contraction in business cycle. Recession is also marked by activity of several macroeconomic indicators that vary. For example, production, investment spending, employment, household incomes, capacity utilization, and profits fall at the time of recession.

At a certain level, governments can respond to recessions through certain measures, such as increasing money supply, increasing government spending and reducing taxation.

What causes it?

There are many causes of recession. In a normal economic cycle, an economy that registers growth for a period of time has a tendency to slow down. Experts say that an economy generally expands for about six to ten years and can go into recession for about six months to as much as two years.

Recession normally happens when consumers feel insecure in the market and do not have confidence in an economy’s growth. In such a scenario, the consumers end up spending less. This causes low demand for goods and services and therefore less production. This also leads to companies laying off people and treading cautiously. General predictors of recession Following are the possible predictors of recession in an economy.

US, a drop in stock market normally precedes a recession. At the same time, it is important to mention here that about half of 10% declines or more since 1946 have not lead to recession. The three-month change in the unemployment rate and initial jobless.