A Recession? (Causes and Impact Written Nov. 2010)

A Recession?

Abstract

This paper deals with the controversial topic of recession. I say controversial, because until the middle of last year, there were mixed opinions as to whether or not we were even in a recession. The challenge is that most economists and people in the political arena are absolutely terrified of using the 'recession' word due to terrifying the general public. Due to the nature of supply and demand, some economists would argue that there are times when a recession is actually a necessary evil.

This paper will elaborate on the causes of our current recession, the economic impact on households, businesses and the government economic solutions. Recessions cannot just continue with no intervention (what many economists see as classical economics). It will also elaborate on some of the preventive measures that can be taken to eliminate or reduce this recession in the short-run (what many economists would see as Keynesianism).

A Recession?

An economic recession is the exact opposite of economic growth.  The NBER (National Bureau of Economic Research) defines recession as "a significant decline in economic activity spread across the economy."  Most often we use the term 'recession', when there is a decline in the GDP for two or more fiscal quarters, high unemployment rate, low retail sales and a decrease in industrial output.  Based on the definition of recession and what is in the economic news, we've been in a recession for the past 2-3 years. According to most economists the U.S. economy entered into a state of recession in late 2007. Due to this, there has been a significant decline in the standard of living for our middle class households. In layman's terms the general public's perception of the term 'recession' is relative. However, in 2006, if you were to ask the average unemployed individual, downsized due to a company re-engineering, with a home in foreclosure, 'are we in a recession?', I'm sure the answer would've been...