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Recession

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What is recession and how it has effected the world economy

What is recession and how it has effected the world economy

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  • 1. RECESSION
    Group 01
  • 2. 2
    Overview
    • Recession: Prologue & Definition
    • 3. Causes of Recession
    • 4. Global Recession
    • 5. Business Cycle Recession
    • 6. Impact on Indian Economy
    • 7. How to come out of Recession
    • 8. Business Opportunities during recession
    • 9. References
  • 3
    The Colours
    Recession..?
    • Recession is shrinking of the economy for two
    consecutive quarters (=6 months) with a
    decrease in the GDP (=Gross Domestic Product)
    • GDP = Value of all the reported goods and services
    produced by the people operating in the country
    GDP = MONEY VALUE OF {C + I + G + (X – M)}
    C = Consumables, I = Gross Investments, G = Government Spending,
    X = Exports, M = Imports
  • 10. 4
    The Colours
    Recession..?
    Cont..
    DEPRESSION
    = WHEN YOU
    LOSE YOUR
    JOB
    RECESSION
    = WHEN YOUR NEIGHBOUR LOSES HIS JOB
    GDP is a good indicator of economy
    Other indicators could be:
    -Unemployment Rate
    -Consumption Rate
    -Actual Personal Income
    -Etc..
    If GDP is growing, then market is growing due to increased demand;
    But If the recession continues for next quarter, (>6 months) then we go through “DEPRESSION” Economy
  • 11. 5
    TWO STAGES OF MARKET ECONOMY
    Growing Market Economy
    Declining Market Economy
  • 12. 6
    Growing Market economy
  • 13. 7
    Declining Market economy
  • 14. 8
    Why Recession happens?
    OVER
    PRODUCTION
    LOW
    CONFIDENCE LEVEL
    PSEUDO DEMAND
    ACTUAL NEED WAS
    NOT THERE;
    WRONG PROJECTIONS
    COMPANIES
    PRODUCED
    MORE
    A situation in which the
    supply exceeds the nation’s
    ability to consume what has been produced;
    Supply > Demand
  • 15. 9
    Why Recession happens?
    LOW
    CONFIDENCE LEVEL
    Word of mouth
    Assignable Cause
    Consumers Fear: Jobs; So, they have less confidence to spend money and buy goods;
    This will result in reduction
    in demand in the market;
    Consumers start saving money instead of spending money;
    This is a downward spiral in
    the economy
    Low Confidence Level
    of Millions of
    consumers and
    producers after- many job cuts, Demand coming down, Companies’ bankruptcy, etc
  • 16. 10
    Why Recession happens?
    LOW
    CONFIDENCE LEVEL
    Assignable Cause
    Bad Incidences Happening
    • 9/11 attack on WTC
    • 17. Mumbai attack in India
  • 11
    Terrorists’ Attack on 11th September in US
    Created fear in people
    People cancelled their travel plans
    Resulted in low occupancy rates
    Airlines & Hotel Industries badly hit
    Airline & Hotel Industries offered discounts,
    gift coupons, to attract people
    But, still, no improvement in occupancy
    rate
    Airline & Hotel Industries started
    “Cost Reduction” activities
  • 18. 12
    Terrorists’ Attack on 11th September in US
    Airline & Hotel Industries started
    “Cost Reduction” activities
    ii] Lay off people
    i] Reduce No. of flights
    iii] Salary reduction to
    “Not laid off people”
    Low or No income to
    spend and buy goods
    In flight meals reduced
    They became careful due
    to the fear of loss of job
    Demand for other goods
    come down
    Meals supplying company
    got the hit
    Started saving money
    instead of spending
    Catering company now,
    lays off people
    Demand for other goods
    come down
  • 19. 13
    Ripple Effect
    The hit on Airline and Hotel
    Industries affected “Un-related” industries
    in the end
    One industry can hit many other industries when the
    confidence level of millions of consumers & producers
    drastically comes down
  • 20. 14
    Global Recession
    Global Recession: When global growth is less than 3%.
    - International Monetary Fund
    At the end of World War I
    1981-82
    1990-91
    2001-02
    2008-09
  • 21. 15
    RECESSION AT THE END OF WORLD WAR I
    • Following the end of World War I, the economy went into a brief recession.
    • 22. In fact there were two: 1918-19, and 1920-21.
    • 23. The 1920-21 recession saw a significant decline in prices.
    • 24. But the decline in output was relatively mild, and the recession was short, particularly given the decline in prices.
    • 25. The difference is that people expected prices to decline, so there was a downward shift in short runs aggregate supply
  • 16
    THE 1981-82 RECESSION
    • In 1980, a new Chairman of the Federal Reserve System, Paul Volker, determined to end the inflation, by cutting the rate of growth of the money supply.
    • 26. The money supply grew by less than expected.
    • 27. The effect was to shift aggregate demand down.
    • 28. If people had changed inflationary expectations, the recession would have been moderate.
  • 17
    THE 1990-91 RECESSION
    • Economists disagree over the causes of the 1990-91 recession.
    • 29. The end of the Gulf War and the Cold War brought reduced government spending on the military, thus shifting the aggregate demand curve to the left.
    • 30. At the same time, banks became concerned about their liquidity, giving the S&L crisis at that time.
    • 31. This too caused the shift in the Aggregate Demand curve.
  • 18
    THE 2008-09 RECESSION
    • Started in December 2007 in the US.
    • 32. Started showing its true colors in September 2008.
    • 33. Happened due to reckless and unsustainable lending practices.
    • 34. Brought down banking and insurance giants like Lehman Brothers, AIG and many more.
  • 19
    Least affected countries
  • 35. 20
    Impact on Indian Economy
    Less severe than in other emerging market economies.
    Its been restricted due to several reasons such as-
    • Indian financial sector particularly our banks have no direct exposure to tainted assets and its off-balance sheet activities have been limited.
    • 36. India’s growth process has been largely domestic demand driven and its reliance on foreign savings has remained around 1.5per cent in recent period.
  • 21
    Impact on Indian Economy
    Cont..
    • India’s comfortable foreign exchange reserves provide confidence in our ability to manage our balance of payments notwithstanding lower export demand and dampened capital flows.
    • 37. Headline inflation, as measured by the wholesale price index (WPI), has declined sharply.
    • 38. Rural demand continues to be robust due to mandated agricultural lending and social safety-net programmes.
    • 39. India’s merchandise exports area round 15 per cent of GDP, which is relatively modest.
  • 22
    How to come out of Recession?
    Important Point:
    Today, it is a market Economy
    Producers;
    Can produce and
    sell at their prices
    Consumers;
    Can decide to
    buy or not;
    Both Producers and Consumers are free to act; Not a forced action
  • 40. 23
    How to come out of Recession?
    Cont..
    Government does not have direct control on Producers’ & the Consumers’ behavior; But, they can influence millions of Producers & Consumers with Government’s policies
    Government has two plans
    Fiscal Policies
    (By Govt.)
    Monetary Policies
    (By RBI)
    Government influences the
    economy by changing how
    it (Government) spends
    and collects money
    RBI manipulates
    the available supply of
    money in the country
  • 41. 24
    How to come out of Recession?
    Government influences the economy by changing
    how it (Government) spends and collects money
    Fiscal
    Policies
    Cont..
    More money
    available for
    spending
    Tax cuts for
    businesses or
    for individuals
    Demand picks
    up; Market
    can recover
    Individuals get
    salary and spend
    money
    More Spending
    by Govt. to
    create jobs
    Automatic
    fiscal policy;
    Unemployment
    Insurance
    Some income to
    unemployed
    people to spend
  • 42. 25
    How to come out of Recession?
    Monetary
    Policies
    Government manipulates the available supply
    of money in the country
    Reduce reserve
    ratio
    More money
    available for bank
    to give loans
    Demand picks
    up; Market
    can recover;
    Lower the
    interest rates
    Individuals take
    more loan
    Use its own
    reserved
    money to buy
    Govt. bonds
    It becomes an
    income to Govt.
    to inject money
    into the market
  • 43. 26
    Why a recession is a good time to start a company
    A recession forces founders to be frugal.
    Recessions force entrepreneurs to take another close look at their ideas.
    Recessions lead to committed start-up teams.
    Recessions toughen up companies.
  • 44. 27
    References
    http://en.wikipedia.org/wiki/Recession
    http://www.investorwords.com/4086/recession.html
    http://www.labnol.org/internet/countries-least-affected-by-economic-recession/8814/
    http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
    King Sarah, Cushman Donald ; Lessons From The Recession: A Management And Communication Perspective
    Thank You