Home > Economics help blog > economics > When Do Recessions End?
A recession is a period of negative economic growth. Falling output leads to higher unemployment, and this rise in unemployment causes a negative multiplier effect. e.g. those made unemployed will spend less causing even less demand in the economy. Thus there are many factors which make it difficult to get out of a recession. What needs to occur for a recession to end?
Interest rate cuts take time. The MPC have cut interest rates from 5% to 0% with little seeming effect. However, over time, people may start responding to lower interest rates and increase spending and increase investment. e.g. people on fixed rate mortgages may find a decrease in mortgage payments next time they remortgage.
Fiscal Policy takes time. Government spending has increased, but again it takes time for this to filter through into the economy.
House prices stop falling. Falling house prices has a big effect on reducing consumer spending. As house prices fall they become more affordable and so there will come a point when they stop falling (or fall at a slower rate) this will encourage spending again.
Time. In a recession, consumers and firms delay spending and investments which are non-essential. e.g. consumers wait an extra 12 months to replace their TV. But, it still needs replacing, therefore although some decisions are delayed their comes a time when firms and consumers can’t wait any more.
See also: How long do Recessions Last?