What is recession ?
Recession is defined as a slowing down of the activity in the economy ie decline in GDP growth of an economy.
What cause a recession ?
Experts says that recession is linked to decrease of spending by consumers because of lack of faith in the economy.Less spending will reduce the demand for the products and thus manufacture will tend to cut down the production.Lower production will lead to cut down job and unemployment will peak to high.
How to recover from recession ?
From the government side :
Government Influences the economy through its fiscal policies to make people to invest money and make manufacture to invest in production .These can by done by reducing direct and indirect taxes and also spending money in concerned sectors. Again reducing tax also also denotes that people have more money to spend.Investment will also boost employment.Thus faith in the economy will be brought back .
In simple way government will ,
====>Tax cuts for business and individuals —->More money available for spending
====>More spending by government to create jobs—–>Individual gets salary and start to spend money
====>Unemployment insurance —>So that every one gets money to spend something.
From Central Bank Side :
Central bank manipulated the available supply of money in the economy.
====>Central bank will reduce loan rates so that money will be available at cheap rate in banks.
====>Central bank will reduce Repo and Bank rate ,so that much money will be available in banks to spend .(Repo and Bank rate will be covered in upcoming articles).
====>Central bank will buy government bonds from public and return money from its own pocket.Government now will get enough money to spend to the economy to recover from recession.
Now What is depression ?
Depression is defined as a severe and prolonged recession.
There is a joke that economists quote to explain the difference between recession and depression.
Recession ===>When your neighbor losses his job.
Depression ===>When you loss your job.
Generally when an economy suffers recession for more that two quarters,we call it as economic depression.The great depression is considered to be the best example for depression.
Government and Central bank will use the same recession logic for depression also to bring back economy from depression.