What Happens During A Recession?

What Happens During A Recession?

A bit of worry is starting to come to light with all this talk of the world currently entering a recession. I think the majority for this fear is due to people not understanding what a recession is and what happens during a recession?

Firstly lets find out what a recession is.

Dictionary.com define a recession as:

Economics. a period of an economic contraction, sometimes limited in scope or duration.

So the good news here is that a recession does not continue forever! If you look at the history of the world economy you will notice that approximately every 7-10 years we experience a recession. This is know as the recession cycle.

That’s all good and well knowing that it won’t last forever, but what should we expect and more importantly what do we need to do during a recession?

What Happens During A Recession?

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* Business Decrease Production
As money becomes tight and people decrease their spending, less people are buying so business have to decrease their production inline with demand.
* Unemployment Rises
As people start spending less jobs start getting cut. Analysts have already started predicting unemployment to raise as high as 10% (currently 4%). Read my list of the top recession proof jobs!
* People Spend Less Money
As the media start scaring the public about the coming of job cuts and the rest, people starts to curb their spendings. Saving up whatever they can so that if something happens like losing their jog, they will be able to live off what they save.
* The Government Increases Spending
To try and make the low spending levels look good as well as helping to meet needs the government starts to increase their spending quite dramatically. For example the Australian government is now offering up to $21,000 for first home buyers to help them get into their first home.

The best thing that we can do is make sure that our jobs are safe, and start saving as much money as we can from our income. As the recession comes to an end their will be some great investment opportunities within both the sharemarket and the property market. And it will be the people who take advantage of these opportunities that will set them selves up to thrive in the coming boom.