What exactly is a recession?

Question

My daughter asked me tonight and honestly I dont know how to explain it to her or what exactly it is. What happens to us? What should we be worried about?

I dont want the "definition" of a recession. i can look that up myself. i want to know what happens that will affect us.

thanks

Answer 1

The overall economy has its ups and downs.  A "recession" is simply a slowdown in overall output.

Answer 2

is it not a shame that our parents could answer that question with ease sounding so confident and conclusive, yet we are still asking the same question of our selves and not so sure about our answers? anyway...

thats when we don't really feel comfortable with buying things we don't need and when we buy things we do need they seem to be more expensive.

by the way, there is no antonym to the word recession.

what should we do? well in the past we just declared war or just kinda slipped into one that was already going on. this forces the government to spend more money here at home creating a higher income to the American people working in factories and such... but now, since we are in a war that will never end.... and most of our labor is outsourced to off-shore factories... its not looking good, for example, when has the president ordered the IRS to give EVERYONE $300.00 - $600.00 extra before in our history?

i would just tell her "its when people are afraid to spend their money because everything is more expensive now and we dont get enough money for everything we want to buy".

hows that?

Answer 3

The economy contracts on a per capita basis. This means that the job market and wages either stagnate or decrease in the face of inflation (the process of a currency losing its ability to buy things)

Essentially it means that people don't spend as much money since they either don't expect to get raises in the face of rising prices or are afraid that they might lose their jobs. This in turn reduces sales, which further reduces job security since the people that were making the stuff that people don't buy anymore get laid-off. It's pretty cyclical. For the economy to be in a recession the contraction has to last for a certain amount of time (I forget how long). Recessions are usually started when one sector of the economy that has represented a large portion of the economic growth over a few years starts to shrink. The one that we may or may not be in now was started by the collapse of the housing market which led to a collapse of the credit market... both of which were extremely important to the economy as a whole.

It's worth noting that the job of the federal reserve is to soften the extremes of the economy, so that when it starts to grow too mush they try to slow it down to avoid bubbles (like the tech and housing bubbles of recent years) that can end up doing more damage to the economy than the good that they represent while they expand. I don't think that they feds have been doing this very well lately.