What Happens During a Recession and How You Can Protect Your Financial Future

Economic Recession

While we are all feeling the effects of the current economic recession many people don’t understand exactly what happens during a recession. In order to learn how to protect your financial future it’s important to learn all you can about the economic crisis. Keep reading and I’ll explain some key elements to a recession.

How It’s Defined

To define recession one has to consider the GDP, or gross domestic product, which is the main index used to measure economic health in any one country. During a recession there is a gradual but steady decline in the GDP over a period of several months. When a recession turns into a depression, the GDP has gone down by 10% or more over a period of several years.

Recession Phase

The following factors describe what happens during a recession and why. While it’s little comfort to understand why these things occur, it is important to education yourself about the effects, causes and likely outcomes.

1. Stock market dips and crashes in anticipation of the recession. Because economists are always carefully studying market and economic trends they are able to predict a recession. In response, the stock market slows with periodic crashes before the rest of us have felt any effects of the coming recession.

2. Interest rates will start to decline also in response to a market prediction of an impending recession. These cuts in interest rates are intended to stimulate consumer spending and off set the overall effects of an economic recession.

3. A sharp increase in unemployment and underemployment rates are one of the most difficult effects of a recession for most of us. Once demand slows, production follows and companies will typically cut jobs first to cushion the effects on their business.

4. Once a recession has dug in its heels, there will usually be some government response. For example, our federal government has responded in part by extending unemployment benefits. Governments will often instate new legislation to provide rebates, tax cuts and refunds in an effort to stimulate the economy.

How To Survive the Recession

Understanding what happens during a recession is only the first step in protecting your financial future. The next step is to find out where you should invest your money. Some of the newest marketing systems like those that utilize the top tier approach can provide answers to the most often asked questions about how to survive an economic recession.

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