Assignmenat 1 – Essay Example

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21th May Recession refers to a contraction of a business cycle. Generally, during a recession, economic activities slow down. Notable characteristics of a recession include falling of gross domestic product, investment spending, household income, inflation, housing market and investment spending. At the same time the rate of unemployment as well as bankruptcies increases. Another notable aspect of recession is that there is widespread decrease in the rate of spending or drop in the demand. The reduction on the rate of spending may be caused by various factors such as financial crisis, supply shock, emergence of economic bubble or a shock in the external trade (Timberlake and Richard 16).

In order for a country to increase its national production, it is imperative that appropriate strategies are undertaken to address recession. Governments address recession by initiating expansionary macroeconomic policies. These include reduction on the rate of taxation, expanding money supply and increasing government spending. For example, within a short period after President Obama took office, approximately $800 billion was passed by the congress as a way of improving the economy.

By increasing the government expenditure, investment rises thus creating more jobs resulting to an increase in the household income and demand. Similarly, reduction on the rate of taxes ensures that investors are left with adequate funds that they can invest in other areas. In most cases, recession is caused by poor government policies. For example by not initiating proper rate of taxation or lack of undertaking government projects, the economy is adversely affected leading to recession. In US, contraction or expansion of business cycle is determined by National Bureau of Economic Research (NBER).

NBER indicates the start and the end of recession but it does not determine depression. Depression on the other hand refers to an extreme recession. Major characteristics of depression include extensive increase in the level of unemployment, deflation and low levels of credit. Due to high level of unemployment, individuals have low income leading to a drastic fall in purchasing power. In the last few years, we have been in a recession. This is based on the slow down of economic indicators such as the level of employment, investment and demand although the levels have not reached extreme levels.

As indicated earlier, recession is addressed by adopting macroeconomic policies that result to an increase in the level of investment. My client should therefore start investing now. One of the major advantages of expanding current investments is that there are available resources including a workforce that is skilled to undertake various duties. If more investors initiate various projects, the level of gross domestic product would increase resulting to an increase in the household income and national demand.

Likewise, government encourages investment by providing subsidies such as reduction of rates of taxes and business loan during recession (Siegel 36). This implies that by establishing an investment now, the manufacturer has the opportunity to benefit from government subsidies thus increasing his profits. Based on the increased net profits, the manufacturer will be in a better position to expand further his investment thus further solving recession. Works Cited Siegel, J. Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies. New York: McGraw-Hill, 2002.Print. Timberlake, J and Richard H.

Business cycles and depressions. New York: Garland Publishing, 1997. Print.

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