ECONOMIC SLOW DOWN

RECESSION

Definition: Broadly defined, a recession is a downturn in a nation's economic activity. The

consequences typically include increased unemployment, decreased consumer and business
spending, and declining stock prices.

Recessions are typically shorter than the periods of economic expansion that they follow, but
they can be quite severe even if brief. Recovery is slower from some recessions than from
others.

The National Bureau of Economic Research (NBER), which tracks recessions, describes the
low point of a recession as a trough between two peaks, the points at which a recession began
and ended -- all three of which can be identified only in retrospect.

The Conference Board, a business research group, considers three consecutive monthly drops
in its Index of Leading Economic Indicators a sign of decline and potential recession up to 18
months in the future. The Board's record in predicting recessions is uneven, having correctly
anticipated some but expected others that never materialized.

An extended decline in general business activity. The National Bureau of Economic Research
formally defines a recession as three consecutive quarters of falling real gross domestic
product. A recession affects different securities in different ways. For example, holders of
high-quality bonds stand to benefit because inflation and interest rates may decline.
Conversely, stockholders of manufacturing firms will probably see company profits and
dividends drop.

Pre-recession economic imbalances

Commodity boom

Housing bubble

Inflation

Causes
Subprime lending as a cause

Government activities as a cause

Over-leveraging, credit default swaps and collateralized debt obligations as

Credit creation as a cause

Oil prices
 ECONOMIC SLOW DOWN

Effects
Overview

The late-2000s recession is shaping up to be the worst post-war contraction on record:

• Real gross domestic product (GDP) began contracting in the third quarter of 2008,
and by early 2009 was falling at an annualized pace not seen since the 1950s.
• Capital investment, which was in decline year-on-year since the final quarter of 2006,
matched the 1957-58 post war record in the first quarter of 2009. The pace of collapse
in residential investment picked up speed in the first quarter of 2009, dropping 23.2%
year-on-year, nearly four percentage points faster than in the previous quarter.
• Domestic demand, in decline for five straight quarters, is still three months shy of the
1974-75 record, but the pace – down 2.6% per quarter vs. 1.9% in the earlier period –
is a record-breaker already.

Decrease in Trade and industrial production

Unemployment

Recession Entrepreneurs

Decrease in Financial markets

Travel

Insurance

Countries most affected

By measuring currency devaluation, equity market decline, and the rise in sovereign bond
spreads, a picture of financial devastation emerges. Since these three indicators show
financial weakness, taken together, they capture the impact of the crisis. The Carnegie
Endowment for International Peace reports in its International Economics Bulletin that two
eastern European countries - Hungary, and the Ukraine - as well as Argentina and Jamaica
are the countries most deeply affected by the crisis. By contrast, China, Japan, India, Peru,
Australia and Canada are "among the least affected".

SUBMITTED TO: SUBMITTED BY:

GEETANJALI SHARMA VISHAL SINGHAL

HUMINITICS DEPTT. ID- 0601293

MNIT,JAIPUR C-3,VII SEM.