Wht Is Recession

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Wht Is Recession

  1. 1. Hello<br />my name is<br />
  2. 2. What is Recession?<br />
  3. 3. Before, understanding “Recession”, <br />we need to understand the market<br />economy;<br />A] TWO STAGES OF MARKET ECONOMY <br />B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY<br />
  4. 4. A] TWO STAGES OF MARKET ECONOMY <br />A1] Growing Market Economy<br />A2] Declining Market Economy<br />
  5. 5. A1] Growing Market Economy<br />Starting Point = Willingness to buy<br />
  6. 6. A2] Declining Market Economy<br />Starting Point = Unwillingness to buy<br />
  7. 7. B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY<br />Producer wants his demand always to be high<br />Consumer wants his buying cost always to be low<br />Actually, Demand is the price at which <br />consumer is ready to buy and<br />producer is ready to sell;<br />Usually, we think; <br />Demand = Quantity<br />But, here Demand = Price; <br />This is because, <br />Price decides the Quantity of Sales;<br />Competitive Price = More Demand;<br />In competitive Price = Less Demand;<br />Producer Price <br />Consumer Price<br />
  8. 8. C] What is Recession?<br />Recession is the economy shrinking for two <br />consecutive quarters (=6 months) with a<br />decrease in the GDP (=Gross Domestic Product)<br />GDP = Value of all the reported goods and services <br />produced by the people operating in the country<br />GDP = MONEY VALUE OF {C + I + G + (X – M)}<br />C = Consumables, I = Gross Investments, G = Government Spending, <br />X = Exports, M = Imports<br />
  9. 9. C] What is Recession?<br />GDP is a good indicator of economy; Other <br />indicators could be;<br /> -Unemployment Rate<br /> -Consumption Rate<br /> -Actual Personal Income<br /> -Etc..<br />If GDP is growing, then market is growing due to increased demand;<br />
  10. 10. C] What is Recession?<br />GDP is a good indicator of economy; Other <br />indicators could be;<br /> -Unemployment Rate<br /> -Consumption Rate<br /> -Actual Personal Income<br /> -Etc..<br />If GDP is growing, then market is growing due to increased demand;<br />Note: If the recession continues for next quarter, (&gt;6 months) then we go through “DEPRESSION” Economy;<br />
  11. 11. C] What is Recession?<br />There is a joke that economists quote to explain the<br />Difference between “Recession & Depression”<br />RECESSION <br />= WHEN YOUR NEIGHBOR LOSES HIS JOB<br />DEPRESSION<br />= WHEN YOU LOSE YOUR JOB<br />
  12. 12. D] What is a Business Cycle?<br />Growing economy has to<br />come down if the production<br />rate of goods & services was more than the actual consumption;<br />What goes up; Has to come<br />down;<br />
  13. 13. E] Why Recession happens?<br />E1] OVER <br /> PRODUCTION<br />E2] LOW<br /> CONFIDENCE <br /> LEVEL<br />
  14. 14. E] Why Recession happens?<br />E1] OVER <br /> PRODUCTION<br />PSEUDO DEMAND<br />ACTUAL NEED WAS<br />NOT THERE;<br />WRONG PROJECTIONS<br />COMPANIES <br />PRODUCED<br />MORE<br />A situation in which the <br />supply exceeds the nation’s <br />ability to consume what has <br />been produced;<br />Supply &gt; Demand<br />
  15. 15. E] Why Recession happens?<br />E2.1] Word of mouth<br />E2] LOW<br /> CONFIDENCE <br /> LEVEL<br />E2.2] Assignable Cause<br />E2.1] Word of mouth<br />Consumers are fearing that they may <br />lose their jobs; So, they have less <br />confidence to spend money and buy <br />goods; This will result in reduction<br />in demand in the market; Consumers <br />start saving money instead of spending <br />money; This is a downward spiral in <br />the economy;<br />Low Confidence Level <br />of Millions of <br />consumers and <br />producers after they<br />hear many job cuts, <br />Demand coming down,<br />Companies’ bankruptcy,<br />etc<br />
  16. 16. E] Why Recession happens?<br />E2.1] Word of mouth<br />E2] LOW<br /> CONFIDENCE <br /> LEVEL<br />E2.2] Assignable Cause<br />E2.1] Word of mouth<br />Consumers are fearing that they may <br />lose their jobs; So, they have less <br />confidence to spend money and buy <br />goods; This will result in reduction<br />in demand in the market; Consumers <br />start saving money instead of spending <br />money; This is a downward spiral in <br />the economy;<br />Low Confidence Level <br />of Millions of <br />consumers and <br />producers after they<br />hear many job cuts, <br />Demand coming down,<br />Companies’ bankruptcy,<br />etc<br />Producers do not stock materials, they<br />reduce their productions, gets into the<br />cost reduction activities, worried about<br />the profitability, etc…<br />
  17. 17. E] Why Recession happens?<br />E2.2] Assignable Cause<br />Bad Incidences Happening;<br />Example: September 11 Terrorist Attack in US;<br /> International Airport block in Thailand;<br /> Mumbai Attacked in India;<br /> etc…<br /> Series of such incidences<br /> leading into a kind of War<br />Please see next slides, for details on business impact;<br />
  18. 18. Terrorists’ Attack on 11th September in US<br />Created fear in people<br />People cancelled their travel plans<br />Resulted in low occupancy rates<br />Airlines & Hotel Industries badly hit<br />Airline & Hotel Industries offered discounts, <br />gift coupons, to attract people<br />But, still, no improvement in occupancy <br />rate<br />Airline & Hotel Industries started <br />“Cost Reduction” activities<br />CONTINUED <br />IN NEXT SLIDE<br />
  19. 19. Terrorists’ Attack on 11th September in US<br />Airline & Hotel Industries started <br />“Cost Reduction” activities<br />i] Reduce No. of flights<br />ii] Lay off people<br />iii] Salary reduction to<br />“Not laid off people”<br />In flight meals reduced<br />Low or No income to <br />spend and buy goods<br />They became careful due<br />to the fear of loss of job<br />Meals supplying company<br />got the hit<br />Demand for other goods<br />come down<br />Started saving money<br />instead of spending<br />Catering company now,<br />lays off people<br />Demand for other goods<br />come down<br />
  20. 20. So, you can see how the hit on Airline and Hotel <br />industries can affect “Un-related” industries <br />in the end;<br />One industry can hit many other industries when the <br />confidence level of millions of consumers & producers<br />drastically comes down;<br />
  21. 21. F] How to know recession?<br />Indicators to say a nation is in recession;<br />- People buying less stuff <br /><ul><li> Decrease in factory production </li></ul>- Growing unemployment <br />- Slump in personal income <br />- An unhealthy stock market <br />
  22. 22. G] How to come out of recession?<br />It is unhealthy for any nation to be in Recession;<br />So, Government will take certain countermeasures <br />to eliminate or reduce the Effect of recession for turnaround;<br />Important Point: <br />Today, it is a market Economy<br />Producers;<br />Can produce and <br />sell at their prices<br />Consumers;<br />Can decide to <br />buy or not;<br />Both Producers and Consumers are free to act; Not a forced action<br />
  23. 23. G] How to come out of recession?<br />Hence, Government does not have direct control on Producers’ & the<br />Consumers’ behavior; But, they can influence millions of Producers &<br />Consumers with Government’s policies;<br />Government has 2 plans<br />Fiscal Policies<br />(By Govt.)<br />Monetary Policies<br />(By RBI)<br />RBI manipulates <br />the available supply of <br />money in the country<br />Government influences the <br />economy by changing how<br />it (Government) spends <br />and collects money <br />
  24. 24. G] How to come out of recession?<br />Government influences the economy by changing <br />how it (Government) spends and collects money <br />Fiscal <br />Policies<br />1] Tax cuts for <br /> businesses or<br /> for individuals<br />More money<br />available for<br />spending<br />Demand picks<br />up; Market <br />can recover;<br />2] More Spending <br /> by Govt. to<br /> create jobs <br />Individuals get<br />salary and spend<br />money<br />3] Automatic <br /> fiscal policy;<br /> Unemployment<br /> Insurance<br />Some income to<br />unemployed <br />people to spend<br />
  25. 25. G] How to come out of recession?<br />Monetary<br />Policies<br />Government manipulates the available supply <br />of money in the country <br />1] Reduce reserve<br /> ratio <br />More money<br />available for bank<br />to give loans<br />Demand picks<br />up; Market <br />can recover;<br />What is Reserve Ratio?<br />Each bank has to keep a high % of their assets in <br />RBI (Reserve Bank of India). These assets do not <br />earn any interest to banks. This money kept in <br />RBI is called “Reserves”; RBI sets certain ratio <br />of this reserves and it is called “Reserve Ratio”<br />
  26. 26. G] How to come out of recession?<br />Monetary<br />Policies<br />Government manipulates the available supply <br />of money in the country <br />1] Reduce reserve<br /> ratio <br />More money<br />available for bank<br />to give loans<br />Demand picks<br />up; Market <br />can recover;<br />2] Lower the <br /> interest rates<br />Individuals take<br />more loan<br />
  27. 27. G] How to come out of recession?<br />Monetary<br />Policies<br />Government manipulates the available supply <br />of money in the country <br />1] Reduce reserve<br /> ratio <br />More money<br />available for bank<br />to give loans<br />Demand picks<br />up; Market <br />can recover;<br />2] Lower the <br /> interest rates<br />Individuals take<br />more loan<br />3] Use its own <br />reserved<br /> money to buy<br /> Govt. bonds<br />It becomes an<br />income to Govt.<br />to inject money<br />into the market<br />
  28. 28. I] WOW!!!!!!!!<br />RBI’s Power or Government’s Power is double-edged <br />sword; Sometimes, their policies to recover from recession <br />can be counter-productive and it may further worsen the <br />situation;<br />If we advise our people to save money, then, the multiplication effect is that<br />the demand will not pickup and recession will continue; Very peculiar!!!!! But, I <br />am not misguiding you; Just think from a macro level, if everybody in the<br />country stops spending, what will happen?<br />Nation’s recession is controlled by the actions of <br />everybody living <br />in that country;<br />
  29. 29. I] WOW!!!!!!!!<br />Currently, <br />Slow Down<br />Stage; Not yet <br />in Recession<br />GDP Growth<br />Rate Down; But,<br />Still expected to be<br />Around 6% in India<br />Most of the developing<br />Economies like China,<br />India;<br />Currently, <br />in Recession<br />GDP Growth<br />Rate Negative;<br />Most of the developed<br />Economies like US,<br />Japan, Germany, etc<br />
  30. 30. HOPING THIS TIME<br />RECESSION VANISHES<br />SOON SO THAT<br />INDIA GETS BACK<br />TO ITS STRONGER<br />GDP GROWTH RATE<br />OF 8% TO 10%<br />(THOUGH THE EXPERSTS<br />SAY IT WILL LAST TILL<br />Q3 OF 2009)<br />
  31. 31. Thanks For Watching<br />Please Share<br />Check out more great forwards at<br />vparakhiya@rediffmail.com<br />vparakhiya@gmail.com<br />Mo.No. :- 94279-13540<br />

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