Chapter P7, Problem 2.3BC

To determine

Concept Introduction:

Recession: Every economy faces different business cycles at different points of time. Recession is one such business cycle. During recession there is huge unemployment and a fall in production of goods and services. Recession slows down the business activities.
The main reason for such phenomenon is the lack of demand and low investment level. When the recession is for a longer duration it is known as depression.

Causes of Recession: The causes of recession are as given below:

• Rise in oil price: When the price of oil increases the prices of every commodity rises due to increase in input cost.
• Fall in House price: When there is a fall in prices of house the wealth of household decreases compelling them to spend less on consumption of goods
• Loss in consumer confidence: This leads to decrease in consumption level as people think that the economy is going through bad condition.
• Credit Crunch: It is the situation when people do not have money to invest or consume as the loans are not easily accessible.
• Rise in Interest Rate: It lowers the amount of investment in an economy which results in low output and employment level.