This article will discuss what is the opposite word of recession. For that, the article will explain what does it mean when an economy is in recession, and what happens when it is at the opposite moment than the recession.
What is a recession?
A recession is a decline in the economy that can happen during months, and sometimes even years. It is a part of the business cycle, and it can’t be avoided, but it can be dealt with in many different ways.
A recession is going on when there is a negative gross domestic product (GDP), the level of unemployment is rising, the retail sales are going down, and the income and manufacturing are also low for a period.
Going into a recession is a sort of domino effect, one bad economic indicator will lead to the next. If the sales are not good, employees can lose their job, which causes the income to go down, sinking the GDP. What changes from your recession to the next is when the economy finally goes into recession.
Economists have said that it is possible to affirm an economy is in recession when the GDP goes down for two consecutive quarters. This will show that the economy was unable to react during this prolonged period.
There are some reasons why an economy can go into recession. It can be caused by a sudden economic shock, meaning that when something unplanned happens that causes serious financial damage, such as the Coronavirus situation, which shut economies all over the globe.
It can also be caused by excessive debt, because when people or companies have a lot of debt, they might become unable to pay it, due to the interest. This can cause them to go bankrupt, shrinking the economy.
Recession can also be caused by asset bubbles, this is when people start to make economic decisions based on emotions. People can become overly optimistic, the same way they were before The Great Depression or the 2008 crisis, and make poor decisions.
At some point, the bubble will break, and people start to sell things, be it stock or real estate in panic, which will crash the market and lead to a recession.
Too much inflation can also lead to recession. Inflation is the rate at which prices go up, and although it is not a bad thing when it goes too high, it can be a problem. That is why the central banks control the interest rate nowadays as a way to get a hold on inflation.
But the opposite can also be a problem. Too much deflation can also lead to recession. The deflation will make the prices go down over time, making salaries lower, causing prices to go even lower. At some point, this cycle reaches a breaking point and people stop spending their money, putting the economy in trouble.
And finally, recession can be caused by technological changes, meaning that when new technological development happens, it can take some time for the economy to adjust to it. An example of this was what happened during the industrial revolution. Due to it, some workers became obsolete, and it took some time until they were put back in the market.
Some recessions can be predicted, they can be foreseen by how the economy has been behaving if people are confident in the economy, how the GDP has been, and how the unemployment rate has been. But the ones caused by an economic shock, like the one Coronavirus brought on, is hard to predict.
Recessions can vary in duration based on how severe they are, and what are strategies each economy uses to deal with them. Now that you have a better notion of what recession is, let’s discuss what is the opposite word to recession.
What is the opposite word of recession?
The opposite word for a recession in economics is expansion. This is a part of the business cycle in which the GDP is growing for two consecutive quarters. It usually happens when the economy is being stimulated, and people start to feel more confident about it.
The expansion causes employment rates to go up, which causes consumers to feel more confident about buying things, bringing the whole economy up. A period of expansion can usually last around 4 or 5 years.
And to say an economy is going on expansion, economists look at the interest rates, the profits of corporations, and capital expenditures.
The interest rates are what stimulate the economy. When they are low, it makes it easier for people and companies to spend money. In the same way, borrowing money becomes easier, and cheaper, and saving money doesn’t always mean the smartest decision, since the interest in it wouldn’t be so high.
During expansion people’s overall quality of life seem to improve, and everyone is collecting from the positive economic climate. But as with any other part of the business cycle, it comes to an end. Expansion starts to end when because people are buying too much, the inflation will go up.
The rise of it will increase the cost of everything, and little by little people will start to re-evaluate their buying habits. This can cause the economy to start going down again.
As frustrating as it may seem, recession and expansion are all part of the same cycle. In the system we are inserted in, it is a fact that both of them will happen, the question that is left for the economists to find out is when.
Frequently Asked Questions (FAQ): What is the opposite word of recession?
What is the difference between inflation and recession?
Although both terms are common when discussing economics, they are different in their definitions. While recession talks about a drop in economic activity, usually related to the decrease of the GDP during two quarters, inflation is what measures the increase in the price of goods and services over time.
The way they are measured also changes. While the recession is usually determined by the analysis of the GDP, the inflation is measured by the Wholesale Price Index (WPI), and Consumer Price Index (CPI).
And even though the recession is usually measured through a period of time, so every quarter, or every semester, the inflation can be measured constantly. And most economies usually evaluate how inflation has changed from one month to the next.
What is the difference between deflation and recession?
Deflation is a process in which the prices of products and services fall over some time, and although it can seem like it is a positive thing, it can turn bad. It can make buyers wait for prices to go even lower, so they stop buying things. This can lead to slow economic growth, and can ultimately lead to a recession.
The difference between deflation and recession is that in a recession you notice it is happening due to the analysis of GDP and other metrics. As for deflation, you can feel it in your day-to-day, when you realize that the prices of goods and services are dropping.
Along with that, deflation can also be measured by the Consumer Price Index. The recession will happen after a peak in the economic activity and ends when the economy goes into a trough, the deflation can set at any time when the prices of the services and goods go down.
What is the difference between deflation and disinflation?
Deflation is the name given to the fall of prices of goods and services, and although it can seem positive at first, it can be prejudicial to the economy and lead to recession.
As for disinflation, it is not as bad for the economy as it can have a positive effect on it. Disinflation is what happens when the price inflation slows down for a small period of time. Because it is a controlled process, it doesn’t lead to the long term effects that deflation leads to.
During disinflation the prices don’t change, what changes is the rate of inflation. It can be caused by a recession or any form of contracting in the business cycle. It can also happen when the central bank of the country tightens the monetary policy.
Who profits from inflation?
Inflation is the measure that lets people, and economists, know how much the prices of goods and services have changed during a period of time. It is not beneficial to the common buyer, but some people can benefit from periods when inflation is high.
It can be a good thing for investors if they decide to sell some assets during a high inflation period. For example, if someone invests in the energy business, as inflation rises the price of it, it may be a good moment to sell some of your assets and make some more money from it.
Companies can benefit from inflation since if it happens, it means they have a higher demand for their goods. When that is the situation, they can put any price they want in it. They can also take some products out of the market as a way of making their prices rise, and put them for sale when they see fit.
But companies can also be hurt by inflation. It can make their production cost higher, and at some point, it can become hard to pass those costs to the general public, and if another company can produce the same thing, at a lower cost to the people, it can take over the market.
When is inflation good for the economy?
Inflation can be good for the economy when it is not working at its full capacity. It can, theoretically, increase production. Because if people have more money, they have more power of purchase, which increases the need for production.
Inflation also makes it easier for people that took credit to repay them. If there is inflation, once they start to pay, they will pay less than what they borrowed. This tends to encourage people to take on more credit, which can help them buy more, having a positive impact on the economy.
Showing how inflation is not necessarily a negative thing in the economy.
This article showed what recession is, how it happens in the economy, and explained a few times it happened before. Along with that, it explained what is the opposite of recession in the economy, and when it has happened before.
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