Theory of Recession

Rising unemployment and the recession have been the price that we've had to pay to get inflation down (Labour Shouts). That is a price well worth paying -----------
(Norman Lamont, British Conservative Politician, 16th May 1991, speech in the House of Commons)

A recession is a significant and sustained decline in economic activity 

within a country or region. It is characterized by a contraction in various 

economic indicators, including gross domestic product (GDP), employment, 

investment, and consumer spending. There are several theories and models 

that attempt to explain the causes and dynamics of recessions. 

Here are some of the key theories:

Demand-Side Theories:

Keynesian Theory: Developed by John Maynard Keynes, this theory emphasizes 

the role of aggregate demand in causing recessions. According to Keynesian 

economics, recessions occur when there is insufficient aggregate demand 

in the economy. This can result from a decrease in consumer spending, 

business investment, or government spending. Keynesian policies suggest 

that government intervention, such as fiscal stimulus and monetary policy, 

can help counteract recessions by boosting demand.

Monetary Policy Theory: Some economists attribute recessions to central banks' 

monetary policy actions. For example, a central bank may raise interest rates 

to combat inflation, but this can also reduce consumer spending and business 

investment, potentially leading to a recession.

Supply-Side Theories:

Real Business Cycle Theory: This theory posits that recessions are primarily 

driven by fluctuations in the supply side of the economy, such as changes in 

productivity or technology shocks. It suggests that recessions are a natural 

consequence of the economy's adjustment to various external factors. Government 

intervention is seen as less effective in addressing these types of recessions.

Structural Imbalance Theory: Recessions can also result from structural imbalances 

in the economy, such as excessive debt, overcapacity in certain industries, or 

a housing market bubble. These imbalances can eventually lead to a sharp correction, 

triggering a recession.

At the depth of recession

• The king is cash-flow; without cash you would not survive
• The Queen is Risk Management; Don't lose what you have
• The Officers are Bargain Investment; Hunt for bargains that will position you for a win when the tide turns.

In simpler terms;

• Manage your funds
• Reduce your risk
• Leverage your opportunities

See You at the Top