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Benefits of Economic Recession

Benefits of Economic Recession

An economic recession refers to a slow down of commercial activities over a prolonged period of time. Though this time is commonly associated with a drastic drop in the gross domestic product (GDP), it is also a phase that witnesses budgets and essential capacity utilization swinging into action.
Gaynor Borade
In economics, a recession relates to a phase in which tightening business contractions take a toll on a nation's economy, over a sustained period of time. This phase is characterized by the presence of macroeconomic indicator variations, unemployment, fall in investment spending, and a drastic drop in personal income and business profits. However, it is also the best time to view the efficiency of government machinery and assess its expansionary macroeconomic policies. Alongside the pitfalls, there are a number of benefits attached, too, which include:
  • Increased money supply (spending) by the government
  • Decreased taxation
  • Opportunities in the extended open market policies
An economic recession is preceded by a significant drop in the stock market, an inverted yield curve, sinking consumer confidence, and an increase in 'unemployment claims'. Nevertheless, its benefits manifest within the first few months of acceptance. On an individual level, this period enables assessment of the effectiveness of a family budget and community crisis management plans. The individual, or unit, like a family or society, is able to unveil previously designed survival strategies or develop new ones to challenge the onset of economic turmoil. There is no doubt that in adversity, there lies an opportunity. Decreased taxation and reduced costs enable the family unit to capitalize on lowered prices of consumer durables and real estate. This is also the best time for the individual to address loopholes and recognize strengths in his or her retirement portfolio.

Another area that emerges stronger is that of self-employment. The preceding trend of unemployment results in a subsequent swell in layoff-induced self-employment. The drop in commercial competition provides greater opportunity for the newly established ventures. Thus, individuals, especially those who bear the responsibility of a family, are automatically turned into entrepreneurs. The survival strategy results in building of family fortunes when the uptrend returns. Not only do most families come closer during the tough times, but they also learn to forge on, despite the odds, with renewed faith. This opportunity, if used constructively, results in robust growth after the economic downturn ebbs.

This period is also the time when entrepreneurs are able to sift the truly innovative from the fair-weather employees. New investors in the fiscal world profit from buying low, and selling high when the worst is over. The same strategy applies to the arena of real estate. It is not uncommon to see homeowners taking advantage of the market situation and getting their property renovated. Senior citizens who have saved well get the opportunity to enjoy their retirement with vacations to exotic locales at run-down costs. There is no denying, that economic troubles makes an individual and the government machinery of a nation wiser and appreciative of the resources at hand. Subsequently, this leads to the deployment of conservation strategies and prudent decision-making in good times.