rec cession

8/8/2019 Rec Cession

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Before, understanding Recession,we need to understand the market

economy;

A] TWO STAGES OF MARKET ECONOMY

B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY


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A1] Growing Market Economy

A2] Declining Market Economy

A] TWO STAGES OF MARKET ECONOMY


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A1] Growing Market Economy

Starting Point = Willingness to buy


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A2] Declining Market Economy

Starting Point = Unwillingness to buy


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Producerwants his demand always to be high

Consumerwants his buying cost always to be low

Actually, Demand is the price at which

consumer is ready to buy andproducer is ready to sell;

B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY

Producer Price

Consumer Price

Usually, we think;

Demand = Quantity

But, here Demand = Price;This is because,

Price decides the Quantity of Sales;

Competitive Price = More Demand;

In competitive Price = Less Demand;


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Recession is the economy shrinking for two

consecutive quarters (=6 months) with a

decrease in the GDP (=Gross Domestic Product)

GDP = Value of all the reported goods and services

produced by the people operating in the country

C] What is Recession?

GDP = MONEY VALUE OF {C + I + G + (X M)}

C = Consumables, I = Gross Investments, G = Government Spending,

X = Exports, M = Imports


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GDP is a good indicator of economy; Otherindicators could be;

-Unemployment Rate

-Consumption Rate

-Actual Personal Income-Etc..

If GDP is growing, then market is growing due to

increased demand;



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GDP is a good indicator of economy; Otherindicators could be;

-Unemployment Rate

-Consumption Rate

-Actual Personal Income-Etc..

If GDP is growing, then market is growing due to

increased demand;

Note: If the recession continues for next quarter, (>6

months) then we go through DEPRESSION

Economy;



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Growing economy has tocome down if the

production

rate of goods & services was

more than the actualconsumption;

D] What is a Business Cycle?

What goes up; Has to comedown;


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E] Why Recession happens?

E1] OVER

PRODUCTION

E2] LOW

CONFIDENCE

LEVEL


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A situation in which the

supply exceeds the nations

ability to consume what hasbeen produced;

Supply > Demand


PSEUDO DEMAND

ACTUAL NEED WAS

NOT THERE;

WRONG PROJECTIONS

COMPANIES

PRODUCED

MORE

E1] OVER

PRODUCTION


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Low Confidence Level

of Millions of

consumers and

producers after they

hear many job cuts,

Demand coming down,

Companies bankruptcy,

etc


Consumers are fearing that they may

lose their jobs; So, they have less

confidence to spend money and buy

goods; This will result in reduction

in demand in the market; Consumers

start saving money instead of spending

money; This is a downward spiral in

the economy;

E2.1] Word of mouth

E2.2] Assignable Cause

E2.1] Word of mouth

E2] LOW

CONFIDENCE

LEVEL


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Low Confidence Level

of Millions of

consumers and

producers after they

hear many job cuts,

Demand coming down,

Companies bankruptcy,

etc


Consumers are fearing that they may

lose their jobs; So, they have less

confidence to spend money and buy

goods; This will result in reduction

in demand in the market; Consumers

start saving money instead of spending

money; This is a downward spiral in

the economy;

E2.1] Word of mouth


E2.1] Word of mouth

E2] LOW

CONFIDENCE

LEVEL

Producers do not stock materials, they

reduce their productions, gets into the

cost reduction activities, worried aboutthe profitability, etc


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Bad Incidences Happening;

Example: September 11 Terrorist Attack in US;

International Airport block in Thailand;Mumbai Attacked in India; Sri Lankan

Cricketers being attacked at Pakistan

etc

Series of such incidences

leading into a kind of War

Please see next slides, for details on business impact;




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Terrorists Attack on 11th September in US

Created fear in people

People cancelled their travel plans

Airlines & Hotel Industries badly hit

Resulted in low occupancy rates

Airline & Hotel Industries offered discounts,

gift coupons, to attract people

But, still, no improvement in occupancy

rate

Airline & Hotel Industries started

Cost Reduction activities CONTINUEDIN NEXT SLIDE


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Terrorists Attack on 11th September in US

i] Reduce No. of flights ii] Lay off peopleiii] Salary reduction to

Not laid off people

In flight meals reducedLow or No income to

spend and buy goods

They became careful due

to the fear of loss of job

Meals supplying company

got the hit

Catering company now,

lays off people

Demand for other goods

come downStarted saving money

instead of spending

Demand for other goods

come down

Airline & Hotel Industries startedCost Reduction activities


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So, you can see how the hit on Airline and Hotel

industries can affect Un-related industries

in the end;

One industry can hit many other industries when the

confidence level of millions of consumers & producersdrastically comes down;


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Indicators to say a nation is in recession;

- People buying less stuff

- Decrease in factory production

- Growing unemployment

- Slump in personal income

- An unhealthy stock market

F] How to know recession?


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It is unhealthy for any nation to be in Recession;

So, Government will take certain countermeasures

to eliminate or reduce the Effect of recession for turnaround;

Important Point:

Today, it is a market Economy

Producers;Can produce and

sell at their prices

Consumers;Can decide to

buy or not;

Both Producers and Consumers are free to act; Not a forced action

G] How to come out of recession?


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Government has 2 plans

Fiscal Policies(By Govt.)

Monetary Policies(By RBI)

Hence, Government does not have direct control on Producers & theConsumers behavior; But, they can influence millions of Producers &

Consumers with Governments policies;

Government influences the

economy by changing how

it (Government) spends

and collects money

RBI manipulates

the available supply of

money in the country



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Government influences the economy by changinghow it (Government) spends and collects money

1] Tax cuts for

businesses orfor individuals

More money

available forspending

Demand picks

up; Market

can recover;

2] More Spending

by Govt. to

create jobs

Individuals get

salary and spend

money

3] Automatic

fiscal policy;

Unemployment

Insurance

Some income to

unemployed

people to spend

FiscalPolicies


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1] Reduce reserve

ratio

More money

available for bankto give loans

Demand picks

up; Market

can recover;

2] Lower the

interest rates

Individuals take

more loan

Government manipulates the available supplyof money in the country

MonetaryPolicies


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1] Reduce reserve

ratio

More money

available for bankto give loans

Demand picks

up; Market

can recover;3] Use its own

reserved

money to buy

Govt. bonds

It becomes an

income to Govt.

to inject money

into the market

Government manipulates the available supplyof money in the country

MonetaryPolicies

2] Lower the

interest rates

Individuals take

more loan


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I] WOW!!!!!!!!

RBIs Power or Governments Power is double-edged

sword; Sometimes, their policies to recover from recession

can be counter-productive and it may further worsen the

situation;

Nations recession is controlled by the actions of

everybody living

in that country;

If we advise our people to save money, then, the multiplication effect is that

the demand will not pickup and recession will continue; Very peculiar!!!!! But, I

am not misguiding you; Just think from a macro level, if everybody in the

country stops spending, what will happen?


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Most of the developing

Economies like China,

India;

Currently,

Slow Down

Stage; Not yet

in Recession

Currently,

in Recession

Most of the developed

Economies like US,

Japan, Germany, etc

GDP Growth

Rate Down; But,

Still expected to be

Around 6% in India

GDP Growth

Rate Negative;

I] WOW!!!!!!!!

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