Core Theories on Economics Related To Economic Slowdown Essay

Core Theories on Economics Related To Economic Slowdown - Essay Example The intention of this study is economic slowdown as the condition in which the gross domestic product growth tends to slow down but it does not turn down. One of the ways of looking at the slowdown in the economy is through gauging the downward revisions in the Gross Domestic Product (GDP). Economic slowdown can also be identified as the difference obtained in the growth rate between two consecutive years of any particular country. An economic downturn demonstrates that the economy of a particular country is entering into recession. The period in which the country suffers from negative economic growths, declining outputs and increasing unemployment is termed as recession. According to the official definition of recession, when the economy suffers from off-putting economic growth for two consecutive years then it is said to be recession. Prior to defining the economic downturn, it is significant to comprehend the main characteristics of economic downturn. A few of the characteristics of economic downturn are rising unemployment, rising additional capacity, low confidence and falling investment, increasing government borrowing, negative or too low economic growth. Certain problems related to recession or economic slowdowns are evident when there is decline in productivity. In such scenario, the production in the economy tends to be reduced which results to lesser real GDP and lower average income. Furthermore, the wage rates may raise either too slowly or may not rise at all. Unemployment is another problem related to economic downturn. (Pettinger, 2011). Since the production is too less during the times of economic slowdown, the demand for the labor also declines thus leading to unemployment. During the times of economic slowdown, the finance of the government tends to worsen. People are not capable of paying much taxes and their spending on the unemployment benefits tends to rise (Pettinger, 2011). This leads to rise in government borrowing and in the rate of i nterest. With the increase in the bond yields, government is forced to reduce budget deficits via cutting the spending and tax rise. This worsens the recession and it becomes difficult for the economy to come out of it. It is often found that throughout the period of economic slowdown, there is devaluation in the exchange rates because during such period people tend to expect lower interest rates and therefore the demand for the