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Causes of Recessions and Business Cycles

Satisfactory Essays
For module five case assignment, we will define what a recession is and indicate whether we think another one is on the horizon. I will explain why I think a recession may be near. I will also explain what factors in the economy will have the biggest impact on the business cycle. Finally, I will discuss whether I think the business cycle is dead.

During the periods of September 2001 to November 2001 the U.S. experienced a terrible time in our country for our economy; it was a recession. Even though it was only for a short period of time and it wasn’t as bad as it sounds, there were people who got laid off from work, that suffered a decrease in personal income, and that felt the effects of the stock market decline. American’s felt that their comfortable lives were starting to unravel. This was not a “high point” for our economy and it’s definitely not what America wants to endure again. However, there has been talk that America may be close to another recession. A recession occurs when there are two consecutive quarters when the economy shrinks. The size of the economy is measured by gross domestic product, which is the value of all goods and services produced within the United States. (http://en.wikipedia.org/wiki/Early_2000s_recession)1

The quarterly Anderson Forecast by the University of California at Los Angeles predicts growth in the gross domestic product of just over 1 percent for the fourth quarter of 2007 and first quarter of 2008. Economic growth will remain "tepid" for the remainder of 2008 and return to 3 percent in 2009, said David Shulman, senior economist for the forecast. That growth is just above the traditional definition of a recession. "Of course, when the economy slows to a 1 percent pace, it runs the risk of falling into an actual recession”, Shulman wrote. (http://www.cbsnews.com/stories/2007/09/12/business/realestate/main3253507.shtml)2 The housing slump has been the biggest weight on the national economy. The combination of higher interest rates and weaker home prices during the housing slump had its toll on homeowners. Foreclosures have climbed to record highs as more and more overstretched people find it impossible to make their mortgage payments. Housing has played a critical role in the current economic expansion. About 30% of the employment growth nationally over the last 3 years was directly due to housing.
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