Money Makes the World Go Round

­A recession is a prolonged period of time when a nation's economy is slowing down, or contracting. Such a slow-down is characterized by a number of different trends, including:

• People buying less stuff
• Decrease in factory production
• Growing unemployment
• Slump in personal income
• An unhealthy stock market

By the conventional definition, this slow-down has to continue for at least six months to be considered a recession.

 

This definition really raises more questions than it answers.

• What does it mean for the economy to slow down?
• Why does this happen?
• How are all these factors related?

And what exactly is "the economy"?

People talk about the U.S. economy as an independent entity, but it is actually the result of millions of people's actions. Economists use all kinds of esoteric terms to describe the connection between people's actions and the economy as a whole. But you can understand the basic idea of this connection by looking at only a few basic concepts: producers, consumers, markets, supply and demand.

How Recessions Work

What actually constitutes a recession? Who decides when the economy is in recession, and on what grounds? When a nation's economy enters a recession, is life guaranteed to get harder for most of its citizens? And how often does a recession lead to a depression?

On Nov. 26, 2001, the news media announced the United States was officially in a recession and had been since March of that year. To most Americans, this wasn't all that surprising: Rising unemployment and a weak stock market had been in the news for months.

­On Jan. 21, 2008, stock prices tumbled around the world. Most analysts pointed to fears surrounding the United States economy and a possible recession as the reason for the drop. Ironically, economic conditions in the United States were affecting the world economy on a day when its own markets weren't even in session -- they were closed for the Martin Luther King Jr. Day holiday. Three days later, news outlets were already reporting a new economic stimulus package, designed in part to try to prevent a recession.

Both the 2008 market drop and the 2001 news blitz raised a lot of questions.