What exactly is a recession and the causes of a depression? Most people have heard the phrase but don’t understand the definition or meaning. That’s probably because it’s too complicated, and unless you hold a degree in business economics, it’s hard to understand the reasons.
In simple terms, it means anything but good. Most Americans always ask how bad a recession is, or if we’re going into a “double-dip” decline with our economy. We know that companies usually lay off workers at the same time consumers stop spending because of an outlook that looks quite grim.
Understanding what exactly causes a recession is even more complicated. The world experiences an economic down turn every few years or so. It’s also known as a “shock” to the financial district, or a “bubble” that is bursting to correct inflated values on stock and merchandise.
An economic bubble happens when products, such as stocks or homes, become worth more than their actual value. When the bubble bursts, the prices of these products fall.
This is usually coupled with less business investing, because business profits drastically decline. The slowdown in business investing in turn results in more bankruptcies, both personal and business, and an increase in the unemployment rate because too many people are chasing too few jobs.
A depression is more serious than a recession that involves a downturn in economic growth for a longer period of time, resulting in much higher unemployment and far less spending by consumers.