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What Is A Recession?

Economies often experience extended cycles of growth and recession. Recessions occur when markets slow down and credit contracts. As the global economy becomes more connected it is important to know how these swells and declines after your local economy.

RECESSION – a period of an economic contraction, sometimes limited in scope or duration

Definition provided Dictionary.com

Economic Cycles

Markets follow periods of prosperity and decline as consumer trends change and outside pressures affect trade. Growth cycles typically occur as the federal reserve eases interest rates for banks. The banks use this cheap money to approve home loans, business loans, and even personal loans. As these loans get approved and businesses open, consumer confidence increases and so does spending. Recessions always follow periods of growth as the market progresses. After years of sustained growth it becomes harder to continue expanding the market.

Macro Factors

Slower trade and growth in the economy can result from a number of areas. Through globalization, economies across the world are linked by trade and other exchanges. So if one country’s economy suffers, their trade arrangement with other countries suffers as well. Political power use trade arrangements, like tariffs to intentionally impact a rival country’s economy and often can have equal if not greater effect.

Micro Factors

On the other end of the scale you have micro factors that can destabilize an economy. These factors include, government policy and taxes, and changes in the market. For instance an increase on rates set by the federal reserve to the banks often leads to an increase on interest rates for credit cards and loans. This raises monthly payments for those using variable rate credit and puts pressure on consumers spending habits. This pressure causes a slow in consumer spending and in worse cases a decline in economic growth.

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