What causes a recession?


Recessions🙄🙄 are caused by a loss of demand which comes about due to loss of consumer and business confidence.

As businesses and consumers lose confidence😣😥 they stop spending and start finding ways to safeguard their money for the impending economic downturn.

Businesses🏢🏣 then make less revenue, so hire less & fire more, this then means there are more unemployed people with less income who are spending less in shops and relying more on government benefits. These people are also paying fewer taxes and this means the government has less income and GDP is falling. At this point, the Central bank🏛🏛 will usually step in with some counteractive measure.

Some causes of recessions🕯🔦

High-interest rates:

They make borrowing more expensive and this means we borrow more money and spend less.e.g credit card 💳💡spending

Deflation:

People will want to wait in hope prices fall some more.📌 Deregulation: this allows companies to carry more risk than they can manage and their failure may bring negative sentiment.🔓🔑 Stock market crash: A lot of people use the stock🌐🌎 market to gauge economic sentiment. If it crashes people stop spending and start saving.

Falling House prices:

As house prices🏠🏚 fall homeowners feel less wealthy and spend less. They are also unable to borrow money using their houses as collateral as they are worthl ess so they spend less here too.

Lack of credit:

💰💸 the lack of credit means banks have no funds to lend to you. This means you can't spend borrowed money.

Asset Bubbles:

These are when stock prices📈📊, house prices etc rise way above their true value. The eventual fall of these prices to their optimal level leaves owners feeling less wealthy and any loans taken out at those prices are called in. This means people feel less optimistic and spend less.

The next recession might be around the corner, will you spot it?🤔🤔

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