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for millennia
the people of britain had been using
bronze to make tools and jewelry
and as a currency for trade but around
800
bce that began to change the value of
bronze declined
causing social upheaval and an economic
crisis
what we would call a recession today
what causes recessions this question has
long been the subject of heated debate
among economists
and for good reason a recession can be a
mild decline in economic activity in a
single country that lasts
months a long lasting downturn with
global ramifications that lasts
years or anything in between
complicating matters further there are
countless variables that contribute to
an economy's health
making it difficult to pinpoint specific
causes
so it helps to start with the big
picture recessions occur
when there is a negative disruption to
the balance between supply and demand
there's a mismatch between how many
goods people want to buy
how many products and services producers
can offer
and the price of the goods and services
sold which prompts
an economic decline an economy's
relationship between supply
and demand is reflected in its inflation
rates
and interest rates inflation happens
when goods and services get more
expensive
put another way the value of money
decreases
still inflation isn't necessarily a bad
thing
in fact a low inflation rate is thought
to encourage
economic activity but high inflation
that isn't accompanied with high demand
can both cause problems for an economy
and eventually lead to a recession
interest rates meanwhile reflect the
cost of taking on debt
for individuals and companies the rate
is typically an
annual percentage of a loan that
borrowers pay to their creditors
until the loan is repaid low interest
rates mean that companies can
afford to borrow more money which they
can use to invest in more projects
high interest rates meanwhile increase
costs for producers and consumers
slowing economic activity fluctuations
in inflation and interest
rates can give us insight into the
health of the economy
but what causes these fluctuations in
the first place
the most obvious causes are shocks like
natural disaster
war and geopolitical factors an
earthquake for example
can destroy the infrastructure needed to
produce important commodities
such as oil that forces the supply side
of the economy to charge
more for products that use oil
discouraging demand
and potentially prompting a recession
but some recessions
occur in times of economic prosperity
possibly even because
of economic prosperity some economists
believe that business activity from a
market's expansion
can occasionally reach an unsustainable
level
for example corporations and consumers
may borrow
more money with the assumption that
economic growth will help them handle
the added burden
but if the economy doesn't grow as
quickly as expected
they may end up with more debt than they
can manage to pay it off
they'll have to redirect funds from
other activities reducing business
activity
psychology can also contribute to a
recession
fear of a recession can become a
self-fulfilling prophecy
if it causes people to pull back
investing and spending
in response producers might cut
operating costs
to help weather the expected decline in
demand
that can lead to a vicious cycle as cost
cuts
eventually lower wages leading to even
lower demand
even policy designed to help prevent
recessions
can contribute when times are tough
governments and central banks
may print money increase spending and
lower central bank interest rates
smaller lenders can in turn lower their
interest rates
effectively making debt cheaper to boost
spending
but these policies are not sustainable
and eventually need to be reversed to
prevent excessive inflation
that can cause a recession if people
have become too reliant on cheap debt
and government stimulus the bronze
recession in britain
eventually ended when the adoption of
iron helped revolutionize
farming and food production modern
markets are more complex
making today's recessions far more
difficult to navigate
but each recession provides new data to
help anticipate and respond to future
recessions
more effectively want to learn more
about how financial markets work
watch these videos to learn about the
stock market or
what causes economic bubbles
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