What is the Economic Disaster?

Meaning of Economic Disaster or Economic Crisis:

The economic crisis generally occurs when there is a downfall in the economy results in the continuous low level of gross domestic product (GDP) and money supply or money transactions gets decrease, thus it directly affects the economy. The economic crisis also occurs when there is no inflow and outflow of imports and exports and thus this stage results in depression in the economy.

The fluctuation in the level of economic activity between the depression and boom has been called as the business cycle or trade cycle with recession and recovery as the main intermediate stage. Stagnation and slowdown are also the main reason for economic disasters.

Stages in Economic Disaster:

There are various stages that result in economic crisis are as follows:

1. Depression:

The economic situation becomes more chaotic in the phase of depression that the government has almost no control over the economy. The major traits of depression are as follows;

• There is an extremely low aggregate demand in the economy causes activities to decelerate
• The inflation being comparatively lower
• The employment avenues start shrinking forcing the unemployment rate to grow fast

2. Recession:

Recession is also known as a mild form of depression. In a recession, future investment plans are given up and orders placed for new equipment, raw materials, and other inputs are canceled. Demand for labor ceases to increase; rather temporary and casual workers are removed in a bid to bring demand and supply in balance.

Since demand for inputs has decreased and thus shows a gradual decline leading to a simultaneous decrease in the income of wage and interest earners. This ultimately causes a demand recession.