Overall Condition Of A Geographical Location-Myassignmenthelp.Com

Question: Discuss About The Overall Condition Of A Geographical Location? Answer: Introduction The term economy refers to the overall condition of a geographical location, in terms of the demand and supply forces and their mutual interactions to reach an equilibrium, which is measured in monetary terms. The dynamic stability of ay economy, though primarily determined by these two forces, is also affected by some other exogenous as well as endogenous economic phenomena, the fluctuation of those cause significant turmoil in the economic scenario of a country, giving rise to abnormal situations. One such condition of abnormality is known as recession, which means an overall stagnancy and slowdown in the economic activities, thereby resulting in the decline of economic growth of a country, resulting in low GDP and growth rates for the time being (Jacobs 2016). The global economic scenario, consisting of many small and big players, has been reined by a few significantly influential and powerful economies, which over the years have grown even more prospering, one of the most powerfu l ones being that of the United States of America. However, even this economy has not had a smooth path towards progress always and experienced a few fluctuations of massive intensity from time to time, one such event being the Great Recession of 2008-2009. The essay discussed this event elaborately and tries to analyze the main cause which caused the Great Recession in the USA, taking into account the tremendous implications the event had (mostly negative) on the economy of the country specifically and on the international economic scene cumulatively (Castells, Caraa and Cardoso 2012). Recession Recession, in the broad sense of the term in economics, refers to the stagnancy and a slowdown in general of an economy, with the overall economic activities (productive, industrial as well as trading) reducing significantly. Much of the recessionary situations arise due to the overall loss in the confidence upon the economy, from both the consumer side and the producer and investor side. With the loss of the overall confidence of the residents from the economy and its future prospects, the supply levels and productivity declines, which in its turn, leads to lowering of wages and creation of jobs, thereby increasing the unemployment burden (Stock and Watson 2012). The direct impact of this recessionary pressure falls on the standard of living of the residents of the economy as a whole. The nature of recession being cyclical by default, the phenomenon often creates a viscous cycle of burden for the economy, thereby taking the concerned economy on a spiral path of sufferings and povert y burden. The impacts of a recession can be seen on the declining growth rates of GDP and GDP per capita of the country at that point of time (Auerbach and Gorodnichenko 2012). Causes of recession Among the various factors, which give rise to a recessionary situation in an economy, there are several key factors, which mostly commonly leads to recession in any economy. Few such factors are explained below: a) Stock market turmoil- Stock market being the backbone of any developed and developing economy in the contemporary period, a sudden crash in the share values of the companies and loss of investors confidence on the profitability of those companies can lead to an overall slowdown in the economic activities of the country as a whole. This may lead to a recessionary situation (Farmer 2012). b) Interest rate irregularities- Economic activities of a country are highly dependent on the monetary variables like the rate of interest prevailing in the economy. Therefore, irregularities in this indicator may result in disinvestment in the economy, thereby reducing the economic activities and giving rise to recession (Bodie 2013). c) Irregularities in residential markets- With residential investments becoming one of the significant components of the GDP of the countries, sudden decrease in the price levels of the housing assets of a country can decrease the growth potential of the economy significantly, taking the economy on the path of a recession. The fall in prices, depending upon the longevity and magnitude of the price fall, can be short term or long term. This type of recession is more common and acute in those significantly developed countries, which experience a high population pressure (Bosworth 2012). Apart from the above-mentioned factors, recession may also be caused due to other factors like creation of wealth and asset bubbles, credit market crunches or natural and manmade calamities including wars, which causes significant hurdles on the path of economic progress of the country. USA and the Great Recession of 2007-2008 The United States of America has been and is continuing to be the biggest influencing economy in the global economic scenario. Being one of the largest contributors in almost all the global economic organizations and governing bodies, the country alone has the capacity to influence the overall economy of the world with its strategies and international policies. The economy of the USA, however, in spite of being one of the most successful one in the global economic history, had faced several notable fluctuations in its growth over time. The two most significant ones of these events, having tremendously adverse and long term effects on the economy, were the Great Depression of the 1930s and the Great Recession of the 2007-2009, the latter being the subject for discussion in this essay (Ball 2014). The Great Recession in the United States of America, as per the data provided by the National Bureau of Economic Research, had already started in the country by the last quarter of 2007, with the dynamics of the economy slowly changing and taking a downturn. With the advent and set in of the recession, the economic growth of the country stagnated and after sometime the country stated experiencing negative statistics in its growth indicators. The GDP of the USA was reduced by almost 51 per cent. It was the first of its kind after the recovery of the economy from the Great Depression of the 1930s. Not only the GDP growth rates, the country also experienced rude shocks in terms of the employment scenarios and the overall reduction in the aggregate demand and supply activities of the economy (Cynamon, Fazzari and Setterfield 2013). Figure 1: Consumption Spending (Personal) in the USA (Source: Bls.gov, 2017) The aggregate consumption levels of the households, which otherwise maintained a consistently rising trend in the country, as can be seen from the above figure, experienced a substantial decline from the last quarter of 2007, with the trend going even low till the third quarter of 2009. The statistics only started showing improvements from the beginning of 2010 (Jenkins et al. 2012). Much of this fall, taken together consumption was a byproduct of the huge increase in the unemployment scenario, which can be shown with the help of the following graph: Figure 2: Ratio of Employment and Population of the USA (Source: Bls.gov, 2017) It is very much evident from the above figure that the country, otherwise experiencing a more or less higher than average employment population ratio, saw a steep decline in the ratio during the period of 2007 to 2009, which persisted till 2010. Post 2010, though the ratio started improving, it could not reach to its persisting levels, before the occurrence of the Great Recession. This in its turn led to the fall in aggregate demand of the country as a whole, thereby adversely affecting the supply scenario and slowing down the overall productivity of the country. The effects of the Great Recession took a significantly long span to wither out completely (Danziger, Chavez and Cumberworth 2012). Great Recession: Primary Cause Over the years, many theories and debates have occurred among the economists all over the globe regarding the causal factors of the Great Recession in the USA, which had its implications not only on the country itself, but also on the global economy as a whole. However, without any debate one factor identified by almost all the economists across the world, as the primary reason for the massive event. This factor was the more than normal exuberance in the housing investment of the country, which was to the extent of irrationality and which created a temporary bubble only to burst it after sometime. This led to the initiation of the Great Recession (Jagannathan, Kapoor and Schaumburg 2013). What was the housing bubble? The economy of the United States of America, post the Great Depression, which occurred in the 1930s, recovered well and eventually started progressing immensely, slowly emerging as one of the most powerful economies in the world. The country experienced a significant increase in the population growth, which along with the industrial and overall productivity growth in the country, gave a push to the housing sector of the country. The residential sector, with the growing income of the residents of the country, also emerged as one of the most prospective sector for investing money as the housing industry showed immense long term prospects. With the rapidly growing population of the country and the increase in the demand for housing facilities, the housing industry gained significant attention of the investors as well as the households of the country (Mian and Sufi 2015). The huge investment in the housing sector was even more facilitated by the overall low interest rates prevailing in the country at that point of time, which was to some extent deliberately done to facilitate investment in different sectors of the country. There was already a working notion and speculation among the investors as well as the household sector, that the price of the housing assets in the country would go on increasing. This, coupled with the prevalence of considerably lower rate of interest in the economy, led to borrowing of funds by the households as well as commercial investors to invest in the housing sector. Housing came as an alternative way of asset building to the households of the country and many commercial enterprises started investing on residential assets, which they bought only to sell at a higher price after some time. The lack of foresight of the governing authorities and proper restrictive regulations added impetus to this phenomenon as many commercial banks and financial and insurance companies emerged in the scenario, which started providing loans with mortgage facilities to the interested people, to invest in this sector. Under this facilities, the borrowers could buy houses by borrowing money from these enterprises and making a very small initial down payment, whereby much of the risk were borne by the companies. The interest only type of loans encouraged the households as well as the commercial investors to this sector. This in turn, created a huge bubble in the residential asset market with both the housing prices as well as the residential investments going up at an abnormally fast pace (Charles, Hurst and Notowidigdo 2016). Bursting of bubble Defying all the positive speculations of the investors, regarding the housing market and its long term prosperity in the economy of the USA, the bubble created in the housing market did burst, much to the shock of the speculators of the country. This led to a sharp decline in the housing prices in the economy, at an abnormally rapid pace, which in its turn, led to an immense increase in the loss of confidence of the common people as well the investors in the country. This in its turn, led to a massive foreclosure in the market, on part of the clientele of the housing market. The worst hit of this foreclosure by the demand side participants, were the commercial banks and the insurance providers, as they took the responsibility of bearing the lions share of the risk burden. Many commercial investing enterprises, including the Lehman Brothers, one of the largest investment bankers in the country, filed bankruptcy during that time and the housing market saw a bailing out of an astonishing $700 billion, marking the initiation of what today is known as the Great Recession of the USA. There was a loss of a whopping 16 trillion USD by the citizens and the stock market of the country crashed like never before. This had its effects on the job market as well as nearly 7.5 million people lost their jobs, thereby reducing the aggregate demand, supply and overall economic activities of the USA to a major level. It took a lot of time and huge reforms on part of the government of the country to take the country out of this situation, towards a sustainable path of economic growth (Rickman and Guettabi 2015). Conclusion The Great Recession of 2007-2008, had huge effects on the economy of the USA and the global economic scene as a whole as many other countries were directly and indirectly affected by the phenomenon. The economy of the USA experienced a slowdown like never before, with all the economic indicators performing terribly and the country stagnating and slowly moving into the spiral of viscous sufferings. The bursting of the housing bubble, being the main cause of this recession, decreased the GDP, GDP growth rates, employment generation and the overall productivity of the economy to an astonishing extent. The financial and the stock market scenarios were threatening and it took a significantly long time for the monetary and governing authorities of the country, to bring the economy back to a steady state equilibrium condition, though many of the damages created by the Great Recession, mostly those on the commercial investment enterprises, were permanent in nature. References Auerbach, A.J. and Gorodnichenko, Y., 2012. Fiscal multipliers in recession and expansion. InFiscal Policy after the Financial crisis(pp. 63-98). University of Chicago press. Ball, L.M., 2014.Long-term damage from the Great Recession in OECD countries(No. w20185). National Bureau of Economic Research. Bls.gov (2017). [online] Available at: https://www.bls.gov/web/empsit/cps_charts.pdf [Accessed 7 Sep. 2017]. Bodie, Z., 2013.Investments. McGraw-Hill. Bosworth, B., 2012. Economic consequences of the great recession: Evidence from the panel study of income dynamics. Castells, M., Caraa, J. and Cardoso, G. eds., 2012.Aftermath: The cultures of the economic crisis. Oxford University Press. Charles, K.K., Hurst, E. and Notowidigdo, M.J., 2016. The masking of the decline in manufacturing employment by the housing bubble.The Journal of Economic Perspectives,30(2), pp.179-200. Cynamon, B.Z., Fazzari, S. and Setterfield, M. eds., 2013.After the great recession: the struggle for economic recovery and growth. Cambridge University Press. Danziger, S., Chavez, K. and Cumberworth, E., 2012. Poverty and the great recession.Stanford, CA: Stanford Center on Poverty and Inequality. Retrieved March,1, p.2015. Farmer, R.E., 2012. The stock market crash of 2008 caused the Great Recession: Theory and evidence.Journal of Economic Dynamics and Control,36(5), pp.693-707. Jacobs, J., 2016.The economy of cities. Vintage. Jagannathan, R., Kapoor, M. and Schaumburg, E., 2013. Causes of the great recession of 20072009: The financial crisis was the symptom not the disease!.Journal of Financial Intermediation,22(1), pp.4-29. Jenkins, S.P., Brandolini, A., Micklewright, J. and Nolan, B. eds., 2012.The great recession and the distribution of household income. OUP Oxford. Mian, A. and Sufi, A., 2015.House of debt: How they (and you) caused the Great Recession, and how we can prevent it from happening again. University of Chicago Press. Rickman, D.S. and Guettabi, M., 2015. The great recession and nonmetropolitan America.Journal of Regional science,55(1), pp.93-112. Stock, J.H. and Watson, M.W., 2012.Disentangling the Channels of the 2007-2009 Recession(No. w18094). National Bureau of Economic Research.