Recession and Depression

Recession and Depression

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  • Mom! Abby and I learned about recession in school today. It's when economic activity slows down. 
  • Recession is caused by inflation and high interest rates. Reduced consumer confidence is another cause because if people believe the economy is bad, then they will spend less.
  • That's so cool! Did you know that the effects of recession include a slump in the stock market, and an increase in unemployment and national debt? The demand for goods increases dramatically.
  • Recession can impact large businesses by cutting back on hiring new employees. Falling stocks becomes more common meaning that stock prices start to decline. The GDP slows down and economic activities such as business orders decline as well. These impacts can be long-lasting. 
  • Let's talk more about depression over lunch.
  • Hi Tyler! I need your help on explaining what depression is.
  • Depression is a deep recession that affects the entire economy and lasts for several years. It's caused by a massive slowdown in economic activity. 
  • So what are the effects of depression?
  • Under depression, profit decreases and consumer goods reduce. Bank credits decrease & consumption levels are low. There is little productivity and people stop purchasing goods since they cost more than they are worth.
  • Finally, depression impacts our GDP by decreasing it and causes the money supply to fall. Many banks fail and people are out of work so there is less production of goods. 
  • Now I understand depression, thank you so much!
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