What causes recessions Essay Example | Topics and Well Written Essays - 750 words - 1

What causes recessions - Essay ExampleBy definition, a recession refers to a two or more sequenti all(prenominal)y quarters of a general decline in economic activity gross domestic product (Gwartney, Stroup, Sobel and Macpherson 171). Generally a precursor of a depression, a recession is comparatively less severe but with almost similar dramatic economic make.While the numerous past recessions appear unique in terms of origin, all are preceded by the Greenspans irrational exuberance that unduly escalates asset values (5). To be sure, there is no one single cause of a recession (Simpson 12-13). Economists are in agreement that while a significant event in a particular sector with notable economic effects may be a trigger, a number of factors often come into play to magnify economic contraction into a visible catastrophe. Accordingly, the causes are categorized into two the demand side shocks that hit one or various components of the aggregate demand AD and the supply-side shocks tha t affect the short-run aggregate supply, inflation through hail push, investments and line of descent profits. According to the demand side economics, a recession can be triggered by one or a combination of an economic slump of a major trading partner, which may be a country or region/an economic block such as the EU a credit crunch drive by the inability of the financial institutions to meet lending requirements of households and businesses or conscious cutting back of credit through abnormally raised interest range on loans a sharp fall or total collapse of crucial asset prices such as property prices and a trade imbalance prompted by an abnormal appreciation of the exchange rate (Tatom 2). On the other hand, the supply recession-causing shocks include increasing international oil prices that subsequently translate into increased cost of production through the oil costs