Economic Recessions

ai) A recession is a period when growth in output falls or becomes negative. The technical definition
now used by governments is that a recession occurs when growth in the output is negative for two
successive quarters.

ii) The 2008-09 recession was the most severe out of the ones listed because it's GDP fell by the
most at -4.1% compared to the next highest at -3.2% in 1979-81.

bi) A recession would mean that the country on average would have less money to spend as the GDP
has fallen. This would cause a decrease in consumer expenditure therefore meaning that people
might not want less goods. This could cause a decrease in imports. Exports however may benefit
because the value of the country's currency will fall meaning that it may be possible for foreign
markets to purchase goods at a cheaper price than usual.

ii) The expectation i made above is shown in only one of the time periods on show in the data. In the
1973-75 recession the imports fell by -5.7% whilst the exports rose by 4.3%, confirming my theory
above. In the 1990-92 recession the exports rose by 2.1% whilst imports also rose by 0.5%, however
the rate of growth in imports was very minimal meaning that it is below the expected growth rate. In
the other two times periods , 1979-81 and 2008-09 both the imports and exports fell, which goes
against my theory above. Overall the expectation i made was not borne out very effectively by the
results in the table.

c) A recession means that many people could become unemployed and also that because people
have less money then the consumer expenditure will be down. If consumer expenditure is down and
government don't raise taxes then the government revenue will fall as less money is being earned
through taxation. Also if unemployment is up then the government will have to spend more money
in order to provide jobs or the pay for benefits. This is show in all the time periods on the table,
especially in 1973-75 when government expenditure is up by 7%. If expenditure is up and income is
down then the government's budget will decrease.

d)The government might bring the economy out of recession by:

1. Tax reductions- If the taxes are reduced then the price of goods become cheaper and more
affordable to a wider consumer audience. If this happens the consumer expenditure could rise
causing more demand and therefore more supply. This in turn could provide more jobs and help
industries. The tax reductions also means that it will be cheaper for industries will be able to produce
goods at lower prices causing the price for consumers to fall again.

2.Government expenditure increases- If this happened in the form of jobs being provided such as
road building then it gives money to the consumers yet also increases the level of infrastructure in a
country which in the future will help boost the economy. Also if the government pays out more
benefits then even more consumers will be able to buy goods which are taxed back to government.
3. Cut interest rates- By cutting interest rates it means that businesses and consumers will be able to
borrow money more easily. This i because they will have to pay less back to the banks meaning that
they are less reluctant to borrow. The borrowed money can then be used to boost consumer
expenditure and also to increase efficiency of industries.

e) An improvement or decline in living standards cannot be seen by looking purely at GDP. The GDP
per capita is firstly an average and therefore does not represent the fact that the economy
will have an elite group of very rich people who will raise the GDP greatly. The GDP does not
represent the amount of luxuries a person can buy either, the GDP has to be comparative.
For example if GDP rose by 100% but also inflation did by 100% then the consumers will
have exactly the same quality of life as before. Then if we look at the fact that if everyone's
GDP rises then everyone will be at the same level as they were before and prices of goods
will rise to counter that meaning that the consumer will have the same standard of life as
before.