The Interrelationship between Recession and Unemployment

When recessions occur, most people put all the blame to the government. Knowledge on economic trends and business economics in the society is not automatically guaranteed if one finishes college. Every time recession occurs, the use of the term is over all newspapers, magazines, and conversations. However, not everyone is fully aware of its definition and how it affects the society as a whole. It is important to note that unemployment has a direct link with a recession. Understanding of both terms will make us fully aware that in many ways people also have the responsibility to ensure that the economy of the country is well-balanced.

To begin, a recession occurs when the gross domestic product of GDP of the country falls in two or more consecutive quarters. GDP refers to the number of goods as well as services utilized by consumers at any given time. This does not only refer to the goods produce or manufactured provided by suppliers, but completely refer to the actual goods consumers have spent on. When a GDP is rising, it means that more goods are bought by consumers which also mean that they have the buying power to pay for what they need. Consequently, when the GDP is falling, it means that consumers are buying lesser goods which may be an indication that they are saving on costs. When suppliers realize that more consumers are buying less, they will also have to cut down production.

The recent recessions that occurred in the United States is caused in part by “artificial GDP”. It is called artificial because it was observed that people are in fact buying more but not in actual cash. Expenditures were made on an installment basis through credit cards. Assets were also acquired through nonessential financing concepts which only increased the burden of consumers to pay for interests and opened the door of banking institutions to slow returns on investments. This made a huge blow to the real estate industry as well as the automotive industry, which forced them to resort to recovery measures such as filing for bankruptcies, giving up headquarters, layoffs, downsizing, and worst, complete shutdown of operations.

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