Managers need to know: Managers need to know how to anticipate recessions. They need to know causes of previous recessions, typical things which cause recessions, and the signs that a recession is about to hit.
| Causes of Recessions | How it works | Associated Recessions |
|---|---|---|
| monetary policy | The Fed can slow the economy by tightening monetary policy, which decreases the money supply and/or raises interest rates. Higher interests reduce economic activity by increasing financing costs. | all recessions? The most famous may be the 1980 recession following the Fed under the then chairman Paul Volcker dramatically raised interest rates to fight inflation |
| supply shocks | A sudden increase in an essential commodity can tip the economy into recession. A good example is the oil crisis of the 1970s. | the 1973-75 recession following an oil embargo |
| credit crunches | Banks play a critical role in the economy by funding business operations and production and individuals for their purchases of big-ticket items like houses or cars. When loans become unavailable (credit crunches), the economy can fall into recession. | the Great Recession of 2007-2008 following the burst of the U.S. housing market bubble |
| waves of optimism and pessimism | Listen to the everyday business managers to gauge the level of uncertainty in the economy. When they start sounding gloomy, a recession may be around the corner. | the 2001 recession following the September 11 attack |
| consumer confidence | In some economies, consumer spending plays a critical role. The United States is a good example. A sudden and wide swing in consumer confidence can influence the economy. | the 1990-1991 recession in the buildup of troops prior to the first Persian Gulf War |
| fiscal policy | Increased government spending, such as new highways and aircraft carriers, can stimulate the economy. The government can also use taxes to influence the economy. For example, a tax reduction would leave more money for consumers to spend and vice versa. | the 1970 recession following the end of Vietnam War, |
| foreign business cycles | A recession in an essential trading country can influence the domestic economy. For example, a Canadian recession can negatively affect the economy in the northern border regions of the United States that heavily rely on trade with Canada. | |
| trade wars | Restrictions on foreign trade reduce our exports to the foreign country and thus can be recessionary. The Great Depression is a good example. | the Great Depression following the Smoot-Hawley tariff |
| speculative mania | An asset price bubble and the following crash can contribute to a recession. When asset prices crash, consumers feel less wealthy and decrease spending. | Japan’s depression in the 1990s following a real estate boom, the 2001 recession following the American high-tech stock market bubble, the great tulip craze of Holland in 1636-1637 |
Q1. Explain how it affects the economy in your own words. The federal reserve can influence the amount of money and short term interest rates. When the money supply is lower and the interest rates are higher there is less money being put into the ecomic activity as finance costs go up and the opposite for more money being supplied to the economy and lower interest rates.
Q2. What do you need to watch to gauge changes in this? To gauge changes in this business leaders need to understand both the direction and magnitude of Federal policy. This goes over a very large amount of different criteria however generally most of the federal reserves data is published often so you can find all the data you need on all the policies. The first step you can take however is to watch the federal funds rate on overnight loans among banks.
Q1. Explain how it affects the economy in your own words. A supply shock can affect the output causing prices to increase or decrease. A positive supply shock causes increase in output decreasing the price. A negative supply shock causes the opposite and can have very bad effects.
Q2. What do you need to watch to gauge changes in this? You need to watch supply changes and current events as all of the unexpected events that affect the supply chain output are what cause all the shocks.
Q1. Explain how it affects the economy in your own words. A credit crunch crunch can badly impact the economy by stifling economic growth by decreasing capital liquidity and reducing the ability to borrow.
Q2. What do you need to watch to gauge changes in this? Watch lending activities being practiced by financial institutions.
Q1. Explain how it affects the economy in your own words. It is a high risk decision which businesses have to make. the decision you make effects the economy positively or negatively it all depends on the outcome of that business decision which you made.
Q2. What do you need to watch to gauge changes in this? Stay informed on companies and their recent purchases and that can give you a general idea on if that company could be affected positively or negatively.
Q1. Explain how it affects the economy in your own words. Consumer confidence can affect the economy really with just how much consumer money is being injected into it. If confidence is low consumers will not be buying as much and the economy will be losing lots of money if confidence is high consumers will be buying more and more money will be flowing into the economy.
Q2. What do you need to watch to gauge changes in this? Watch current events going on in the world and the economy. Especially watch for a recession or possible downturn as these will greatly affect consumer confince in a negative way. You can also watch how different companies are doing, check for supply shocks, or even just ask your friends it is very important to check data on how much consumers are spending either through groups or big chunks of data on the country as a whole as this is the easiest way to tell how consumer confidence is feeling.
Q1. Explain how it affects the economy in your own words. Fiscal policy is how the government is spending it’s money. It influences the broader economy through adjusting it’s levels of spending and tax revenue. When this happens it either increases or decreases economic activity depending on if the government plans on using more or less money.
Q2. What do you need to watch to gauge changes in this? Watch if the government is increasing or decreasing it’s economic activity.
Q1. Explain how it affects the economy in your own words. With the inter related international ecoomy a foreign business cycle can affect the U.S. economy greatly. A bad period in a crucial trade partners business period could cause a large loss in trade revenue. Basically in this connected global economy one countries business outcomes will affect other countries economies in a large or small way it just depends how important that country is to your home countries economic well doing.
Q2. What do you need to watch to gauge changes in this? See how other countries economies are doing like if they are in a recession, are still producing goods, or if that countries main economic growth creating section is prospering.
Q1. Explain how it affects the economy in your own words. Trade wars can cause expensive tarifs and cause the price of raw materials and finished imported goods to go up negatively affecting the economy by makiing the consumer spend more on a product. It can also make it cost more for you to send your product to another country making you lose out on proffit. A good example we saw was Trump’s tarde war against China
Q2. What do you need to watch to gauge changes in this? Look at geopolitical events and see if prices in imported goods are going up along with seeing if sending products or materials to that country is actually getting more expensive.
Q1. Explain how it affects the economy in your own words. When there is a sharp steep change either a raising or lowering of the prices caused by the market’s momentum. It catches many people’s attention and people begin to rapidly speculate on where the market is going next.
Q2. What do you need to watch to gauge changes in this? Watch what is being inflated in the market whether it be stock or something like crypto.
Explan each of the following terms in your own words. The author explains the terms in the textbook. If necessary, you may also Google the term on the Web. Good resources include:
Explain the terms in your own words briefly.
The old way of market theorizing and economic growth which emerged during the 18th and 19th century.
A theory of the total spending in the economy and its effects on output and inflation.
American economist and statistician who received a Nobel Prize in 1976 for his Economic Sciences.
The central banking system of the United States.
Actions that are supposed to control the nations money supply and achieve it’s economic growth.
The rate that banks charge to each other to borrow or lend excess reserves overnight.
Delay between an economic action and it’s consequence.
An interest rate that has been adjusted so that it can remove the effect from inflation.
A type of chart which uses a line showcasing the yield’s curve
The use of government spending and tax policy to influence economic conditions especially macroeconomic conditions.
A period of temporary economic decline in which trade and industrial activity are reduced. It is generally identified by a fall in GDP for two whole consecutive qaurters.
An economic factor that can be used to predict which way a market or economy may go in the near future.
Relevant events which include economic significance.
Describe the characteristics of the following events briefly.
It was a recession that lasted 8 months and had multiple factors causing it to happen, the Gulf war was one of them.
An 8 month recession, there was a large drop in manufacturing across sectors.
An economic stagnation in the western world. the oil crisis of the 1970s effected it.
A tariff created to protect farmers and other national industries which we highly valued from foreign competitors.
A speculative frenzy of tulips in 1636 to 1637 which caused tulip prices to go up an extreme amount. Ending with Tulip trade prices collapsing and the trade of Tulips suffering…