SYLLABUS SECTION: GS III (ECONOMY)
WHY IN THE NEWS?
Recently, US Federal Reserve has raise hikes its benchmark interest rate by three-quarters of a percentage point, as it seeks to combat the fiercest surge in U.S. inflation in four decades.
- Based on past experiences, this sudden rate tightening can trigger a recession.
REASONS FOR THE ACTION:
- The labor market is extremely tight, and inflation is much too high | US FEDERAL RESERVE HIKES ITS BENCHMARK INTEREST RATE.
Ukraine and ongoing supply-chain struggles are creating additional upward pressure on inflation and are weighing on global economic activity.
What is a Recession?
- A recession is a period of declining economic performance across an entire economy that lasts for several months.
- It is a part of the business cycle.
- The business cycle refers to the fluctuations in economic activity that an economy experiences over a period.
- At the peak of the business cycle, the economy is healthy and growing; stock prices for companies often reach all-time highs.
- During the recession phase of the business cycle, income and employment decline; stock prices fall as companies struggle to sustain profitability.
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CHARACTERISTICS OF A RECESSION
- Contraction
- Unemployment
- Income Inequality
- Business Cycles
RECESSION V/S DEPRESSION
- A recession and a Depression differ on two main criteria: Intensity and duration. Depressions are usually much longer and their severity is spread over several years. Depression is not a clearly define term by any international economic body.
- The only instance of a Depression being used across the board to mean the same thing is the Great Depression of the 1930s.
Read more:Â UPSC CURRENT AFFAIRS
SOURCE: ECONOMIC TIMES