Recession And Its Ill Effect Essay

687 words - 3 pages

It has been 5 years now, but the world economy is still hovering over with ill effects of global economic recession. Different economist define recession in a different way but one common definition which can be derived is that recession is long lasting and prime reason for slowdown to economic activity(GDP). In terms of measuring the effects of recession, the broadest indicator of economic activity is real gross domestic product(GDP). Our following section will discuss how the economic activities in US has actually decreased since the beginning of market turmoil.
Fall in Consumer Consumption Expenditure:
Consumption Expenditure is the most integral component of GDP calculation and consumer consumption accounts for 70% of total consumption expenditure. Since the advent of recession, US Economy saw fall in consumer consumption expenditure which during third quarter of 2008 changed by -3.8% and -4.3% during last quarter of 2008. Consumption expedniture was not only felt in consumer consumption but also in durable, non-durable and service sector.

Fall in Private Investment:
Private Investment was the most severe area in which recession had its deep impact. Economists have recognized the impact of the central role of investment and technology as key contributors to economic growth. Thus, with fall in investment spending and adoption of new technology by business houses in US, GDP suffered a steep decline. The reason for low investment expenditure were:
i) With reported job loss and high level of unemployment, it was obvious that income of ocnsumers were decreasing and with forecasted low level of demand resulted in lower investment and finally a negative effect on GDP factor.
ii) Destruction of US banking system and limited access to low cost credit also affeced the economic activity.

Fall in Import Levels:
Foreign Exchnage business is the last compnonet of GDP Factor and even this arena was not left unaffected by US Recession. With low consumer demand, the import market was deeply affected. With advent of recessionary period...

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