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Cause And Effects Of An Economic Recession Economics Essay

Recession can be defined as significant decline in general economic activity extending over the period of time. (http://recession.org/definition) “Many professionals and experts around the world believe that a true economic recession can only be confirmed if GDP (Gross Domestic Product) growth is negative for a period of two or more consecutive quarters”- .GDP is the country economic performance.
A global recession is a period of global economic slowdown. (http://recession.org/definition) In United State, the National Bureau of economic Research (NBER) Hold authority which identifies recession. Global recession is more difficult to define.because developing nations are expected to have a higher GDP growth than developed nations. There is no commenly definition to define global recession. World have gone through the past three global recessions of the last three decades.
January-july1980 and july 1981-Novenbr 1982 2 years totale
July 1990 march 1991 8 months
Noveber 2001-Noveber 2002:12 months
December 2007-2010
“The late 2000s recession is an economic recession that begun in USA in Dec 2007 and spread out globally. The USA crisis stared during a hosuing market correction, declining doller value and a subprime morgade crisis. The USA recession has resulted in fast drop international trade market and unemployment.” The UK has officially announced recession in 2008.Its Gross Domestic Product shrank for the first time in 17 years between July and September 2008.the economy of uk has also been hit by rising oil prices and credit crisis. The ernes and young itel club predicted growth of only 1.5 percent in 2008,slowing to 1 percent in 2009.they also predicted consumer spending would slow to only 0.2 percent and forcast a two years drop in investment. The financial sector is directly related to stock market, banks, and foreign multinational banks and mortgage companies. Banks main role is to provide a finance to regulate the economic growth. In present time banks operate almost every business. Bad economic planning of banks has suffered the world with worst economic disasters.
This survey will provide a broad overlook of finding social and financial research on impact of recession on the housing industry and the banking industry, its causes, consequences and immediate policies…Its aim to be of what we need to know about it for the future prosperity.this dissertation will discuss the two manin banks of uk.Northan rock and Barcalys PLC.northan rock a moragade company was the fist direct victim of recession and it lost biliions and people had to suffer for it.Barcalys Plc also effected with recession and through out is tried to b keep itself stable.the survaey report will investigate the causes of collapse of northan rock and how barcalys sustain in the recession periods.
Rationale
Aim and Objectives The dissertation will aim to find answers the following research questions through the analytical techniques and the data collections.
What causes an economic recession? What are the effects of an economic recession on the financial sector?
What is the current scenario and what is the future of financial sector state of UK?
Some of the financial companies are not affected by recession? What are the strategies they adopted?
What is the short term and long term strategies adopt by a business in the recent recession?
To know present finacial condiion of the global market as well as uk economic markit
To access the impact of global economic crisis on the uk economay particulary its impact on housing market and finical compnies like northan rock bank and barclays
To make some policy implications and conclusion to avaiod a economical recession.
To identygy the sttategiesn that can b used by the goverment and the finicla compnies
To identfy the oppertunities and threts strenghts weakness of the uk economical markit.
Rationale
The genesis of the global recession was in the global financial system and the housing sector. There seemed to be a mass delusion that housing prices world wide could just keep going up forever, and investors just kept lending money based upon that delusion. I should say some were deluded but some were making very rational but greedy and immoral decisions; some people quite well that the lending that was occurring was going to go bad but they didn’t care because they were making a lot of money.
Finally when that delusion began to come crashing down, the world suddenly lost confidence in many lending activities beyond those involved. They began to pull back on investing. The delusion that people had about their property values also came crashing down, and suddenly people felt poor and stopped spending discresionary income.
It is basically all caused by the bursting of a bubble of delusion about how much wealth we all were really creating. Given the reality of what wealth really is available, people suddenly realize they have more debt than they can really afford. People just don’t have money to spend, but not only that, they’ve already spent their future earnings.
Economies are very sensitive to reality checks like this. Smart people pull back on spending and become very conservative in their consumption.
1 year ago
The recession is global because of global trade imbalances. Some countries such as USA and others have been borrowing too much and buying too much stuff from exporting countries. While these exporting countries were accepting too many IOUs from USA and others in exchange for their exports.
There is a limit to how much money people can borrow. Because people have to pay interest on their debts. And when their debts become too large. Then the regular payments on these debts become too large for the borrowers to pay.
The global economy has reached its borrowing limits. Countries that were borrowing can’t borrow anymore. And countries that were exporting their stuff in exchange for IOU’s can’t export anymore. Because their customers are no longer able to make the ever increasing payments on these IOUs.
There is a way to get out of this economic dead end. And it involves turning around and going back the same way. The importing countries much become exporting countries. And the exporting countries much become importing countries. Because only this way the huge global debts can be repaid and global economic balance restored.
But in practice this isn’t easy to do. Because a lot of factories need to be moved. And a lot of workers need to be retrained. And for this reason many governments will try to delay this kind of change for as long as possible. Which will result in a very long

The effectiveness of a free market system

The market system is markets in which governments’ have very limited roles, it can also be known as the free market. Many may question this type of market system though, in that how can such a system without any major policies or government intervention, solve the basic economic problems of, what to produce? How to produce and for whom to produce? Adam Smith, a famous Scottish philosopher economist, argued that individuals pursuing their self interest would be lead as by ‘an invisible hand’ in doing things that are in the interest of society as a whole. In this market, if an individual desires to start up a business, once established, would in turn benefit society by creating new jobs and opportunities. This benefit would move the society’s production possibility frontier onwards and outwards, and would further result in a productively and allocatively efficient business.
The main feature of a free market system is that it enjoys the pricing system which is determined through forces of demand and supply of a product or service without any influences of monopolistic or oligopolistic markets. This is the only time where government intervenes; in ensuring consumers enjoy the benefits of low prices. Competition within the market therefore, allows consumers’ to have choices and benefit from low prices and in return leads businesses to expansion or creation of new products or services. Free market businesses also have high profit motives therefore ensuring efficiency and effectiveness within the operational functions of the business.
Based on information gathered it shows where1 Mexico benefits from a free market economy in the trillion dollar class with regards to investment climate. The country established this state through the mixture of modern and outmoded industry and agriculture, increasingly dominated by the private sector. Likewise, Tanzania enjoys more than ninety percent of total foreign investments. Some of the country’s investors include the United Kingdom, the United States and Germany to name a few. The sectors that attracted these top country investors are tourism, agriculture, fisheries, mining and manufacturing all under a free market system2. Altogether, it is appears that the market system is the best mechanism in encouraging a positive investment climate, however, everything that has advantages, must have some sort of negativity affiliated.
In this market, with high levels of rivalry, it has been known to adversely affect employment and poverty levels in China and India in division between the rich and the poor. Even highly developed economies such as the United States and Canada are known to encounter these issues consequent of a total free market economy3. Additionally, in an attempt to maximize profit levels, business owners in a free market may be tempted to reduce competing levels and operate as a monopoly, in essence to non government intervention. Income differences are also likely to be substantial since there are no taxes imposed in reducing it.
In the real world it is not perfect; it would never really have a market where demand is equal to supply – a state of equilibrium. Therefore, in conclusion the free market would never really be a best allocating mechanism for scarce resources.
Word Count: 524words
PART A – QUESTION 2 People disbelieves of a free market economy has highlighted the nature of a command economy. In contrast to a free market system, in command economies the government decides what will be produced? How it will be produced and for whom it would be produced? This further encompasses detailed instructions that are issued to households, firms and workers. There is very little private sector business activity within this economy as oppose to a free market economy. It is a very bureaucratic and time costly task of the government in planning and making decisions of these roles, as such; even though there is maximization in the application of resources, there is no completely planned economy where there is efficiency in the allocation of resources.
With government in command, they produce products and services that are only required to be produced, consequently limiting consumers’ choices. Also, there is no room for competition within this economy, therefore any improvements in product designs is highly unlikely. Employees are also poorly motivated knowing that the business is not trying to make profits; therefore they are not benefited in any way from working harder, or even giving their input in showing the enterprise of how to possibly make its business more successful.
On the other hand, with a command economy, there is stability within the economy. Also, this economy plans on a long term basis of perhaps via infrastructure investments, whereas the private sector is only after short term profits. The economy is intended to serve needs collectively rather than individually which allows equal distributions of wealth within its nature making no room for any discrimination. Through the high levels of government control in the economy, it does ensure sufficient supply of industrial products be made available at affordable prices for manufacturers’ all in the effort of the overall welfare of the economy. All production decisions are based on the governments’ assessments of people’s needs rather than the consumers’ spending patterns. 4A planned economy, in theory does not suffer from any business cycles, that is, and is no booms or recessions: it does not experience crisis of overproduction.
According to the CIA Factbook, it estimated that for a time the Soviet Union was the world’s second largest economy and was that of a command, the economy eventually collapsed though, resulting in the various republics gaining its independence, for e.g., Kazakhstan transitioning into a free economy. This country now reaps the benefits of a friendly foreign investment climate. The economy has been healthily operating since the transition. China, before 1978 and India before, 1991 were also important command economies. Presently, command economies are relatively rare however it does still exist in certain countries such as in Cuba and Iran.
The student believes that there is really no room for investment climates within a command economy, especially since potential investors evaluates and investigates conditions for private sector investment. This is due to all the disadvantages discussed earlier, for e.g., the basic salary wages would in fact reduce the demand for labor which affects an investor’s decision in thinking of the long run outcome.
Word Count: 517 words
PART A – QUESTION 3 As a free market allows practices of self interest without any significant restrictions, and a command economy allows minute capacity of individual economic freedom since most decisions are centrally taken by the government, the student would now discuss a mixed economy as a result to these market failures.
In a mixed economy as in Trinidad and Tobago, the government and the private sector act together in solving the economic issues presented. The government controls a significant allocation of output through taxations, transfer payments and the provision of services such as the defense force and police force. Government also regulates the extent to which an individual may pursue their own self interest.
In this market type, the government provides essential services for all in society, no discrimination; the private sector is encouraged to operate successfully in earning profits from enterprise. Competition within the market will result in innovate products produced at reasonable prices to consumers hence an overall satisfaction to consumers in having the benefit of choice of a product. In mixed economies, government rule out all inefficient business behavior, for e.g., dangerous products or polluted factories such as the International Aluminum Smelting Industry, which results in very detrimental health impacts to society.
Some disbenefits though are that taxes may be too high to pay for public goods, which can result in a decrease in motivation to work hard or make profits. The public sector may also not be as productive and efficient as oppose to the private sector. Government also needs to be careful when setting controls over business operations, too much control can add to cost and thereby discouraging enterprise.
Trinidad and Tobago is known to have an open investment climate meaning that almost all investment barriers since 1992 to be exact have been abolished. Based on data collected, 5due to the nation’s strategic location, natural resources, excellent infrastructure and pro-investment business climate, Trinidad and Tobago have in the past acquired the highest foreign direct investment (FDI) per capita in Latin America and the Caribbean. Increased levels of export returns have stirred both the public and private sectors’ outflow and inflow. Some of the sectors in which potential investors may consider in T

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