A recession is defined as a slowdown in economic activity. Recessions in the economy customarily come about because of a reduction of the GDP growth rate of the same nation. They are, in most cases, characterized by a decline in business investments, a fall in sales, and a decline in manufacturing quantities, among other features. During recessions, the stock market is also significantly affected, causing the nation’s currency to perform poorly in the foreign exchange market.
Research from past recessions has indicated that each recession will have specific causes. However, there are the common ones, which include:
- High-Interest Rates: When banks and other financial institutions charge high-interest rates, they could cause a recession. This is because this situation limits liquidity, such that there is less amount of money available for making investments. Under normal circumstances, an economy requires low-interest rates to allow people to purchase loans and mortgages, among other investment opportunities.
- High Technology: This was the main cause of the 2001 recession in the United States of America. Because of the economic boom in the sales of computers and software majorly accelerated by the Y2K scare. In this, people purchased the new computer systems in the market to make sure that their software was compliant with Y2K. When the prices of these computer systems went down, the investors lost a lot of money, hence becoming bankrupt. Since a greater part of the population had been affected, the economy was as well affected, leading to a recession.
- Other causes: As mentioned earlier, several causes could bring about a recession; the list is almost endless.
- Nevertheless, other possible causes include exuberance in certain markets, and for instance, the 2008 recession was because of vitality in the housing market. In this case, people bought houses using mortgages at low prices, expecting them to go up. However, that was not the case, leading to huge losses, which caused the recession.
- Tight Fiscal Policies by the governments have been known to cause a recession. This normally comes about as a nation’s government tries to control inflation.
The economy of the United States is facing crises, especially in terms of the macroeconomic effects that are being experienced. For instance, the exchange rates keep on fluctuating, the current account is in deficit, and the nation is facing unemployment issues. Other macroeconomic effects include the issues of inflation, taxation, and fiscal policies, among others. From this, it is possible to argue that the macroeconomic effects being currently experienced by the United States are only geared to a low growth trend and not a recession.
Earlier in the question, the causes of the recession were looked into, and it was found that the recession came about because of several causes, which caused a decline in the GDP. The current macroeconomic effects are issues that the government incorporation with other stakeholders can deal with. However, if the situation at hand is left to extend further, then a recession will likely occur because the GDP will have been significantly affected by then.