Question

Discuss thoroughly and nuanced for the reasons why a recession may occur.

In order to write nuanced answers, it is necessary to answer from different perspectives. To do objective reasoning, showing things from different perspectives. A consequence can be positive for one party but negative for someone else. Or positive in a short-term perspective but negative in the long run. It usually depends only on how to look at the matter. Your task is to showcase these different perspectives. Show that you have a deeper understanding of the subject's complexity. That reality is not black and white, but it's a gray area.

Answer 1

Recession refers to the economic condition which is characterized by the fall in aggregate effective demand in an economy. Fall in aggregate demand reduces profits of firms. Now firms do not find sufficient incentives to make investments in economic activities. Hence, during recession, output and employment opportunities fall. This phase is also characterized by the fall in prices or this is deflationary phase.

There are some positives of recession as well. During the recession, inefficient firms lose their competitiveness and are either out of business or are acquired by the efficient business. Firms tend to invest in research and innovation. People also tend to save more and more savings are channelized towards the starts and business houses. Recession makes us more innovative in long run.