Influences of Economic Slowdown

Introduction

Economic slowdown, also know as recession, is a common term we come across in the news. This paper discusses the effects of the economic slowdown to the economy in general. The question posted does not indicate the cause of the economic slowdown and hence no assumption is made to the primary cause of the economic downturn.

Economic slowdown which is part of a business cycle is inherent in market economies. It has significant effects on the livelihood of the citizens and businesses performance of a country. The hypothetical business cycle with varying duration and intensity has four phases of peak, recession, trough and recovery as shown below (Tucker 2005, p. 390).

Figure 1. Hypothetical business cycle

Source: http://swlearning.com/economics/tucker/eft4e/ppt_exhibit/business_cycles.ppt

Economic slowdown occurs during the Recession stage shown above with the real GDP declining and reaches its lowest at the Trough stage. At this stage of the business cycle unemployment rises, business profits drops, and production capacity is underutilized. Generally a recession is period of at least two consecutive quarters where the real GDP declines heading towards a Trough (Guell 2007, p. 79).

This paper shall discuss how a country’s economy is measured and the effects of the economic slowdown from the aspects of aggregate demand and supply, production capacity, inflation, employment rates and other inputs or outputs in relation to the economy. We shall also discuss how the government can attempt to react to the economic downturn through its fiscal or monetary policies quoting examples from previous economic downturns around the world.

Measurement of the Economy

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