Issues That Lead to the Recession Term Paper Example | Topics and Well Written Essays - 2500 words - 1

Issues That Lead to the Recession - Term Paper Example â€Å"A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a countrys gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.†(Recession†¦.) Recession hurts the government in some of the vital areas that are the supporting pillars of the economy and its impact is unfavorable news for the government budget. Government borrowings rise. Tax revenues dip low due to lower income tax and corporate tax revenues. With the steep rise in the unemployment levels, the government is obliged to extend unemployment benefits to a wider section of the society. Higher borrowing leads to higher taxes and additional interest payments in the future. As shares turn unattractive, the prices begin to dip. Lower profitability and lower dividends create a depressive mood for the investors and they look out for alternative sources of investment. The fall in share prices continues in anticipation of recessionary trends prolonging. But this is only the initial phase. When recession is at its hardest phase, the developments take a strange turn. In anticipation of economic recovery, share prices begin to recover, as the prudent investor calculates that it is the favorable time to invest from the point of view of long term gains. Falling prices of shares may be due to various other factors as well, not alone recession. The normal reaction to recession is that it should result in a lower inflation rate. The highlight of recession is it reduces demand and wage inflation. The issue to be examined is what economic factors impact the recession hard. The current recession is due to rise in oil prices. The expert opinion about this inflation is, it is bound to