Let’s untangle what happens during recessions3 min readReading Time: 3 minutes
Welcome to our 2-part illustrated column where we go head to head with knotty terms being thrown around in the news. This week’s knotty problem is 2020’s global ‘recession.’ So let’s dive right in:
Part 1 – What is a Recession?
Before we get filthy with the swampy issue of the recession, what on Earth is receding anyway?
Yup, the thing that’s not growing but shrinking or receding is known as the economy. Economic activity occurs when a bunch of stuff and various services are created for other people to use. When economic activity is high, more spending and production occurs, and jobs are created; the economy is doing well. Everyone makes more money, the rich get richer, and the poor are pulled out of poverty. However, when people can’t leave their homes to spend, or the demand for products disappears, economic activity reduces.
Owliver’s Obscure Observation: A country’s economic growth or decline is measured by assessing its Gross domestic product, or GDP. GDP is the total value of the goods and services that a country produces in a year.
The economy recedes
This is when the economy starts to decline. People reduce their spending, so production also reduces (if no one is buying chocolate anymore, why would companies produce any?).
When people don’t need or want products and services, businesses lose money, and many of them shut down! In turn, jobs are lost, and there are more unemployed people with less money to spend. This creates an environment where our entire system of producing and using stuff collapses.
Since the economy is now producing less and less, the GDP shrinks. And stuck in a vicious cycle, the recession becomes worse and deepens.
As you’ve probably already puzzled, that’s not a good thing. Poverty can increase, and slowly even essential services such as farming and food production get affected.
But, there are ways to stay afloat through a recession and eventually swim right out of it. Stay tuned for next week’s article, where we talk about the recession of 2020 and what various governments have done to fight it.
(Picture This is an illustrated column that demystifies complex topics)