a economic trend

Before, understanding
“Recession”,
we need to understand the
market
economy;
A] TWO STAGES OF MARKET ECONOMY

B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY

TWO STAGES OF MARKET ECONOMY

Growing Market Economy

Declining Market Economy

 Growing Market Economy
Before January2008

Starting Point = Willingness to buy

Declining Market Economy
After January 2008
TWO FACTORS OF MARKET; - DEMAND & SUPPLY
Producer wants his demand always to be high
Consumer wants his buying cost always to be low
Actually, Demand is the price at
which
consumer is ready to buy and
producer is ready to sell;
Usually, we think;
Demand = Quantity
But, here Demand = Price;
This is because,
Price decides the Quantity of Sales;
Producer Price Competitive Price = More Demand;
In competitive Price = Less Demand;
Consumer Price
 What is Recession?

Recession is the economy shrinking 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)}

Consumables, I = Gross Investments, G = Government Spendin

X = Exports, M = Imports
 What is GDP?
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;

Note: If the recession continues for next quarter, (>6

months) then we go through “DEPRESSION” Economy;
 D] What is a Business Cycle?

What goes up; Has to Growing economy has to

come down if the production
come rate of goods & services was
down; more than the actual
consumption;
 Why Recession happens?

E1] OVER E2] LOW CONFIDENCE

PRODUCTION LEVEL
 Why Recession happens?

E1] OVER
PRODUCTION

PSEUDO DEMAND
A situation in which the
ACTUAL NEED WAS supply exceeds the nation’s
NOT THERE; ability to consume what has
WRONG PROJECTIONS been produced;

Supply > Demand

COMPANIES
PRODUCED
MORE
 Why Recession happens?

E2] LOW CONFIDENCE

LEVEL

E2.1] Word of mouth E2.2] Assignable Cause

 Word of mouth
Low Confidence Level of Millions of consumers and
producers after they
hear many job cuts, Demand coming down, Companies’
bankruptcy, etc

Consumers are fearing that they may

Producers do not stock
materials, they reduce
their
productions, gets into the
cost reduction activities,
worried
About the profitability,
etc…
lose their
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
Bomb Blasts in Several States of Assignable Cause
INDIA in 2008
Bad Incidences Happening
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 CONTINUED
“Cost Reduction” activities IN NEXT SLIDE
So, you can see how the hit on Airline and Hotel
ndustries can affect “Un-related” industrie
n the end;

One industry can hit many other industries when the

onfidence level of millions of consumers & producer
drastically comes down;
 How to come out of recession?
s unhealthy for any nation to be in Recession;
, Government will take certain countermeasures
eliminate or reduce the Effect of recession for turnaround;
Important Point:
Today, it is a market Economy

Producers; Consumers;
Can produce and Can decide to
sell at their prices buy or not;

Both Producers and Consumers are free to act; Not a forced action
 How to come out of recession?
ce, Government does not have direct control on Producers’ & the
sumers’ behavior; But, they can influence millions of Producers &
sumers with Government’s policies;

Government has 2 plans

Fiscal Policies Monetary Policies

(By Govt.) (By RBI)

Government influences the RBI manipulates

economy by changing how the available supply of
it (Government) spends money in the country
and collects money
 How to come out of recession?
Fiscal Government influences the economy by changing
Policies how it (Government) spends and collects money

1] Tax cuts for More money

businesses or available for
for individuals spending

2] More Spending Individuals get Demand picks

by Govt. to salary and spend up; Market
create jobs money can recover;
3] Automatic
Some income to
fiscal policy;
unemployed
Unemployment
people to spend
Insurance
 How to come out of recession?
Monetary Government manipulates the available supply
Policies of money in the country

More money
1] Reduce reserve
available for bank
ratio
to give loans

What is Reserve Ratio? Demand picks

up; Market
Each bank has to keep a high % of their assets in can recover;
RBI (Reserve Bank of India). These assets do not
earn any interest to banks. This money kept in
RBI is called “Reserves”; RBI sets certain ratio
of this reserves and it is called “Reserve Ratio”
 WOW!!!!!!!!

RBI’s Power or Government’s Power is double-edged

sword; Sometimes, their policies to recover from recession
can be counter-productive and it may further worsen the
situation;
If we advise our people to save money, then, the multiplication effect is that
the demand will not pickup and recession will continue; Very peculiar!!!!! But, We
are not misguiding you; Just think from a macro level, if everybody in the
country stops spending, what will happen?

Nation’s recession is controlled by the actions of

everybody living
in that country;
 WOW!!!!!!!!

Most of the developing Currently, GDP Growth

Economies like China, Slow Down Rate Down; But,
India; Stage; Not yet Still expected to be
in Recession Around 6% in India

Most of the developed

Economies like US, Currently, GDP Growth
Japan, Germany, etc in Recession Rate Negative;
 HOPING THIS TIME RECESSION VANISHES
SOON SO THAT INDIA GETS BACK
TO ITS STRONGER GDP GROWTH RATE
OF 8% TO 10%
(THOUGH THE EXPERTS SAY IT WILL LAST TILLQ3 OF 2009