A Recession is a prolonged period of time when the nation’s economy is slowing or it is the reduction of the Gross Domestic Product(GDP) for at least six months. The producers and consumers are the two basic people upon whom the whole economy revolves. The value of goods and services is determined by supply and demand. In case the price is too high there will be less demand and the producer reduces the price to increase supply.
Increasing demand leads to an increase in the production thereby increased supply which in turn results in increased labour ,materials and overall increase in price.Now the general feeling is good. You want to make investments and consequently the stock markets go up.
Consequently this leads to overproduction and the supply exceeds consumption.Now the attitude of the people changes to saving mentality and this can lead to a contracting economy.People spotting a negative trend on one area fears the same to happen in other areas and suddenly RECESSION is on.
In a market economy the market is determined by demand and competition putting it beyond any control.A government has the fiscal and monetary policies in controlling the recession.While the former is on collecting and spending money and latter on manipulating the available money. Both can either improve the situation or worsen it.
According to the Halfway Rule past recessions lasted only for 13 months. So continuing with the trends the present recession is predicted to last till 2010.
A recession in US should worry India as it has major outsourcing deals.The strengthening rupee is another cause of concern.Oil prices coming down is at present keeping inflation down.The way out of the present crisis is only through a massive fiscal stimulus either by monetizing or by tax cuts.Indian Government is relying on private investments and resurrection in agriculture.
But the stress should be on public spending as advocated by Keynes who argued that the solution to recession is through reduced interest rates and increased public spending.
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