economics inflation and recession

how does the government reduces recession?

- Implementing appropriate fiscal policies: Government would increase government spending and decrease taxes. - Implementing monetary policies: Central banks would increase the money supply available for spending or decrease interest rates. - Creating jobs: Government would try to create as many jobs as possible to reduce the unemployment rate, increasing productivity and ultimately increasing spending.

effects of inflation?

-Creditors lose, as their money has less value when loans are repaid. - Borrowers generally gain from inflation, as they pay back dollars with less purchasing power than when they borrowed it. -It leads to inaccurate forecasts as persons are not accustomed to thinking with inflation in mind, and they will also make costly errors by confusing real and nominal interest rates.

effects of recession?

-Decline in economic growth. - An increase in the unemployment rate. Firms are forced to cut the operational costs incurred by paying wages. - Collapse or poor performance of the stock exchange markets. - Failure of businesses. - Financial market failure. - Decline in house value or prices

causes of recession?

-High interest rates are a cause of recession because they limit liquidity, or the amount of money available to invest. -Reduced consumer confidence is another factor that can cause a recession. If consumers believe the economy is bad, they are less likely to spend money. Consumer confidence is psychological but can have a real impact on any economy. -Reduced real wages, another factor, refers to wages that have been adjusted for inflation. Falling real wages means that a worker's paycheck is not keeping up with inflation. The worker might be making the same amount of money, but his purchasing power has been reduced

how to fix/how the government reduces inflation?

-Implementing appropriate fiscal policies: Governments reduce their spending and increase taxes. This policy works in combating demand- pull inflation. -Implementing a monetary policy: Central banks would reduce the money supply available for spending or increase interest rates. This policy works in combating demand- pull inflation. - By designing policies which will spur productivity/reduce operational costs, such as giving grants to firms and giving tax breaks and other incentives. - Direct Intervention: these are measures taken to restrict wage increases and price(s) of commodities. The two types of direct intervention are legislative (government freezes wages and prices) and voluntary.

causes of inflation?

-When demand is growing faster than supply which leads to increase in prices (demand- pull inflation). - When companies operational costs increase due to increases in either the inputs, wages etc., which results in an increase in the price of their products in order to maintain a profit margin (cost-push inflation). - Changes in exchange rates

what is a recession?

A recession can be defined as a period of general economic decline. This is usually observable through a drop in GDP for two or more quarters

what is inflation

Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase.

what is demand pull inflation?

This theory can be summarized as "too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase. This usually occurs in growing economies.

what is cost push inflation?

When companies' costs go up, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of imports.

types of inflation?

cost-push and demand pull