Recession

Heterodox

In economics, the recession is the business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending an adverse demand shock. This may be triggered by various events, such(a) as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster e.g. a pandemic. In the United States, it is defined as "a significant decline in economic activity spread across the market, lasting more than a few months, usually visible in real GDP, real income, employment, industrial production, & wholesale-retail sales". In the United Kingdom, it is for defined as a negative economic growth for two consecutive quarters.

Governments commonly respond to recessions by adopting expansionary macroeconomic policies, such(a) as increasing money supply or increasing government spending & decreasing taxation.

Government responses

Most mainstream economists believe that recessions are caused by inadequate aggregate demand in the economy, and favor the use of expansionary macroeconomic policy during recessions. Strategies favored for moving an economy out of a recession restyle depending on which economic school the policymakers follow. Monetarists would favor the ownership of expansionary monetary policy, while Keynesian economists may advocate increased government spending to spark economic growth. Supply-side economists maytax cuts to promote business capital investment. When interest ratesthe boundary of an interest rate of zero percent zero interest-rate policy conventional monetary policy can no longer be used and government must use other measures to stimulate recovery. Keynesians argue that fiscal policy—tax cuts or increased government spending—works when monetary policy fails. Spending is more effective because of its larger multiplier but tax cuts earn issue faster.

For example, Paul Krugman wrote in December 2010 that significant, sustained government spending was necessary because indebted households were paying down debts and unable to carry the U.S. economy as they had previously: "The root of our current troubles lies in the debt American families ran up during the Bush-era housing bubble...highly indebted Americans not only can't spend the way they used to, they're having to pay down the debts they ran up in the bubble years. This would be professionals such(a) as lawyers and surveyors if someone else were taking up the slack. But what's actually happening is that some people are spending much less while nobody is spending more — and this translates into a depressed economy and high unemployment. What the government should be doing in this situation is spending more while the private sector is spending less, supporting employment while those debts are paid down. And this government spending needs to be sustained..."