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causes and effects of recession in the economy

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Published: Mon, 5 Dec 2016

Literature review

Literary sources are vital in our research study as they help in furthering our understanding on key concepts regarding recession. Such concepts include basic definition and perception of recession, causes and effects of recession and how to avoid recession in the future. Literary sources are important to this research as they offer insights as to which research methods can be used and which research path to follow.

Nagle (2009) explain how the recession is perceived by the average American citizen. The average citizen identifies recession as a period whereby jobs are limited and bills are hard to pay. Though the definition may not be limited to this particular way of thinking, Nagle identifies this to be the main train of thought. However, through basic definitions and illustrating causes of inflation, the reader¿½s mind is able to fully evaluate what a recession means. Through the literary works of Nagle (2009), this research if fully able to relate correctly o the average citizen¿½s concepts on recession. Furthermore, through illustrations of real world recessions and offering ways to deal with recessions, Nagle¿½s work helps to further research through insights as to how future recessions may be predicted by the average citizen.

Cushman & King (1997) further our understanding of the impacts of recession. Through illustrations such as the remarkable turnaround of the IBM Company and government budgeting by the United States government during the various recession periods, this literature is able to identify some of the root causes of recession as well as ways to handle and possibly avoid such recessions. The literature suggests that recessions are no longer caused by market forces but rather depend on the country in question being competitive globally. King and Cushman¿½s work contributes to our research in that it helps further our understanding on possible other causes of inflation as well as providing adequate illustrations of situations in which companies such as IBM, were able to handle economic recessions.

The Great Depression was the greatest recession that has been experienced in modern times (Rhodes, Stelter, 2010). After the Great Depression, the economic conditions improved substantially. However, it is noted that in 1937, the country fell into recession once again due to budgeting efforts by the federal government to balance the deficits brought forward from the Post World War period. Many companies have failed or lost a significant amount of revenue due to the recession. This trend follows throughout history. Three fundamentals highlighted by Rhodes & Stelter (2010) help companies to avoid these negative effects of recessions. These are: protect financial fundamentals, protect business fundamentals and protect revenue (Rhodes, Stelter, 2010). Using specific companies such as IBM and past recessions, they prove the value of these fundamentals to any company that is faxing economic struggles. Rhodes & Stelter, (2010) indicate that one of the main reasons for the recurring recessions in the economic history of the United States is the current monetary policy in place at the time of the recession. Their contribution to this research is through this fact as well as providing means for companies to avoid being caught up in the inflation.

(Hetzel, 2010) in his publication, Monetary Policy in the 2008-2009 Recession tries to explain the economic recession that the U.S economy felt during the 2008 – 2009 period. It focuses on a change in monetary policy so as to avoid the intensification of recession as was exhibited in the previous recession. Though the recession began late in 2007, it was noted to have intensified in the summer of 2008(Hetzel, 2010). As the federal government reduced the available funds in the economy in response to a failing economy, the result was a monetary panic that only served to worsen the economic situation. Hetzel in his article identifies one of the major causes for the economic recessions both in the past and in the present as changes in monetary policy that are placed into effect as the recession wears on. Through ¿½what if¿½ arguments and deductions based on past recessions, Hetzel seeks to help the public understand the relation between cyclic inflation and monetary policy. The publication is a vital reference point for this research as it illustrates the consequences from changing the monetary policy in response to economic hardships.

International Monetary Fund (2002) illustrates the crucial role financial institutions have in controlling any economic situation especially the recession. Financial institutions have been influenced by large changes in the technology sector. Due to this it becomes difficult to evaluate and compare the impact of the current recession with the recession from 1990-1991. However, one is still able to identify and track the change in monetary policy over the past two decades. This trend is largely used in rationalizing the effects of the recession between the two time periods. Besides being one of the main sources for economic records that will be analyzed throughout this study, financial institutions bear the responsibility of managing economic recessions. This literary work forms one of the core sources for answering the research question.

Throughout the five literary sources that were reviewed, it was identified that all the sources point to a faulty monetary policy as being one of the root causes of the various recessions. Another similarity is how all the contributors to the various works arrived at this same conclusion which is through historical analysis of past recessions. Moreover, the research method used in this paper is based on the overall success of those used in all the five reviewed literary works. All hint that having a favorable monetary policy may be the key to possibly avoiding future recessions. However, some disagree and point out that market forces and monetary policies are no longer factors that influence the possibility of recession but rather the global competitiveness of the region involved. Though all the works listed provide suggestions as to how future recession may be avoided in the United States, none offers solid proof to back up the theories. Perhaps this may be due to the current economic recession that the country is facing at the moment. For this reason more research has to be dedicated in determining foolproof ways of avoiding future economic recessions in the United States. This may involve analyzing countries and companies that were able to survive previous economic recessions such as IBM.


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