Name: What causes an economic recession? - Richard Coffin
Uploaded: 2019-10-16T13:44:16.000Z
Duration: 5 min 5 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

the people of Britain had been using  bronze to make tools and jewelry,

But around 800 BCE, that began to change:

the value of bronze declined, causing  social upheaval and an economic crisis—

This question has long been the subject  of heated debate among economists,

A recession can be a mild decline in  economic activity

a long-lasting downturn with global  ramifications that last years,

there are countless variables that  contribute to an economy's health,

making it difficult to pinpoint  specific causes.

So it helps to start with the big picture:

recessions occur when there is a negative  disruption

to the balance between supply and demand.

There's a mismatch between how many  goods people want to buy,

how many products and services producers  can offer,

and the price of the goods and services  sold, which prompts an economic decline.

An economy's relationship between supply  and demand

is reflected in its inflation rates  and interest rates.

Inflation happens when goods and services  get more expensive.

Put another way, the value  of money decreases.

Still, inflation isn't necessarily  a bad thing.

In fact, a low inflation rate is thought  to encourage economic activity.

But high inflation that isn't accompanied  with high demand

can both cause problems for an economy  and eventually lead to a recession.

reflect the cost of taking on debt for  individuals and companies.

The rate is typically an annual percentage of a loan

that borrowers pay to their creditors  until the loan is repaid.

Low interest rates mean that companies  can afford to borrow more money,

which they can use to invest  in more projects.

High interest rates, meanwhile, increase  costs for producers and consumers,

Fluctuations in inflation and interest  rates

can give us insight into the health  of the economy,

but what causes these fluctuations  in the first place?

The most obvious causes are shocks  like natural disaster, war,

can destroy the infrastructure needed to  produce important commodities such as oil.

That forces the supply side of the economy to charge more for products that use oil,

discouraging demand and potentially  prompting a recession.

But some recessions occur in times of  economic prosperity—

possibly even because  of economic prosperity.

Some economists believe that business  activity from a market's expansion

can occasionally reach  an unsustainable level.

For example, corporations and consumers  may borrow more money

with the assumption that economic growth  will help them handle the added burden.

But if the economy doesn't grow as  quickly as expected,

they may end up with more debt  than they can manage.

To pay it off, they'll have to redirect  funds from other activities,

Psychology can also contribute  to a recession.

Fear of a recession can become a  self-fulfilling prophecy

if it causes people to pull back investing and spending.

In response, producers might  cut operating costs

to help weather the expected  decline in demand.

That can lead to a vicious cycle as cost  cuts eventually lower wages,

Even policy designed to help prevent  recessions can contribute.

When times are tough, governments and  central banks may print money,

increase spending, and lower central bank interest rates.

Smaller lenders can in turn lower their  interest rates,

effectively making debt “cheaper”  to boost spending.

But these policies are not sustainable  and eventually need to be reversed

That can cause a recession if people have  become too reliant on cheap debt

The Bronze recession in Britain eventually ended when the adoption of iron

helped revolutionize farming  and food production.

making today's recessions far  more difficult to navigate.

But each recession provides new data to  help anticipate and respond