Recessions

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Define Recession
a period of time when the economy contracts (negative economic growth: GDP) for two consecutive quarters
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Characteristics of a Recession
1) Lower output 2) Higher unemployment 3) Lower inflation 4) Decline in consumer confidence 5) fall in value of assets such as houses and shares
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Causes of recession
Either demand side shock (fall in AD), supply side shock (rise in SRAS)
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Demand Side
1) Higher interest rates (1991, increased interest rates made mortgages expensive, leading to decline in consumer spending and fall in house prices)
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Demand Side 2
2) Credit crunch and fall in bank lending (2008, bank losses led to fall in bank lending causing lower investment and consumer spending)
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Demand Side 3
3) Global recession- will lead to lower exports and lower confidence
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Demand Side 4
4) Stronger exchange rate- appreciation in exchange rate will make exports less competitive
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Demand Side 5
5) Fall in house prices- cause negative wealth effect, leading to lower spending
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Demand Side 6
6) Tightening of fiscal policy-cut government spending and increase taxes will cause lower AD
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Supply Side 1
Rise in oil prices would cause the SRAS to shift left causing both inflation and lower GDP
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Supply Side 2
Supply shock causes dilemma- interest rates could be increased to reduce inflation OR they could be cut to boost economic growth
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Supply Side 3
leads to a worse trade off-both higher inflation and higher unemployment
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Other cards in this set

Card 2

Front

Characteristics of a Recession

Back

1) Lower output 2) Higher unemployment 3) Lower inflation 4) Decline in consumer confidence 5) fall in value of assets such as houses and shares

Card 3

Front

Causes of recession

Back

Preview of the front of card 3

Card 4

Front

Demand Side

Back

Preview of the front of card 4

Card 5

Front

Demand Side 2

Back

Preview of the front of card 5
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