is the world heading for a recession? explain the conditons under which the world can be classified as being in a recession as COVID-19 persists. explain linking the pandemic to the various stages of a recession
is the world heading for a recession? explain the conditons under which the world can be classified as being in a recession as COVID-19 persists. explain linking the pandemic to the various stages of a recession
Recession is an important phase of the business cycle. The recession is the movement from economic prosperity which is the highest point of the business cycle towards the economic depression which is the lowest point of the business cycle. The movement from prosperity to depression will have increased unemployment in the economy and lower levels of GDP in the economy.
COVID-19 is an epidemic that started in China and spread like a wildfire all around the world. The spread and death of more than 100,000 people around the world due to the epidemic forced the countries around the globe to call for a lockdown of the economy. The businesses, as well as all the production units, were closed down in order to prevent the further spread of the epidemic in the economy. This had an inverse impact on the output and GDP of the economy. The main reasons why it is said that the epidemic leads to the recession are as follows:
- The rise in unemployment: The job loss due to the COVID-19 was so severe that even the US is now experiencing the largest unemployment rate of the economy in recent periods. The case is not much different from other economies around the world also. This indicates the initial stage or the ignition point of the recession in the economy.
- Falling output in the economy: the recession would build up from the mass unemployment to the next level through the fall in the output of the economy. The closing of the production units and the lower availability of workers and other transportation and communication problems leads through many barriers to productivity and results in lower output in the economy. The fall in the economic output is the second stage of the recession in the economy.
- Lower Aggregate Demand: The lower employment rate and the lower output in the economy results in lower levels of income and lower aggregate demand in the economy. The lower AD is the third stage of the recession in the economy.
- Peak production: It is the final stage of the recession in the economy where the demand will become lowest whereas the production will be highest leading to high inventory stock and then declining the production and causing the recession to finalize in the economy.
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