Comic from Noblesville Daily Times
What does it mean to be in a recession? What does it mean when we say that the Economy is in decline?
When we talk about “the Economy” what does it actually mean? The media often throws this word around pretty easily because they believe the general public would more easily understand that than actually trying to explain what a recession is. Calling everything associated with the money situation in the country “the Economy” dumbs it down. People may think they know what it means, but more often than not, the explanation is not good enough. The citizens of the United States are often smarter than the media gives them credit for.
So what do they really mean when they say “the Economy” is in a recession? News anchors and writers will often say “the Economy has dropped 3.5% in the past year, putting us in a recession.”
What they are saying is that the GDP of the country has dropped 3.5% in the past year. GDP stands for Gross Domestic Product. The Gross Domestic Product of a nation is the total value of all the final goods and services produced in a country. A final good is not turned into another good. For example, if a wine producer grows $300 worth of grapes which turns into $600 dollars worth wine that he then sells, only the sale of the wine is counted in final GDP.
When we are in a recession, the GDP has been diminishing. Normally economists would only classify diminishing GDP a recession if it has been sustained over six months.
When GDP diminishes, there are less goods and services produced. People are making less money, and there are less jobs available for those who need them.
What we are seeing in this time is a large enough drop in GDP to cause people to fault on loans they have received to run their business or buy there homes. This creates a domino effect. Banks have lost money due to citizens not being able to pay back on the loans they have given out. Therefore banks do not have as much money to loan out, and interest rates have shot to the roof. This has made starting a business or buying home near to impossible. When business can’t grow, nor can the GDP. When people have less money, they spend less money, and GDP is stuck in a free fall.
