1. What is Recession?

2. Before, understanding “Recession”, we need to understand the market
economy;
A] TWO STAGES OF MARKET ECONOMY
B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY

3. A1] Growing Market Economy
A] TWO STAGES OF MARKET ECONOMY
A1] Growing Market Economy
A2] Declining Market Economy

4. A1] Growing Market Economy
Starting Point = Willingness to buy

5. A2] Declining Market Economy
Starting Point = Unwillingness to buy

6. Producer wants his demand always to be high
B] 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;
Competitive Price = More Demand;
In competitive Price = Less Demand;
Producer Price
Consumer Price

7. C] 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)}
C = Consumables, I = Gross Investments, G = Government Spending,
X = Exports, M = Imports

8. C] What is Recession? 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;

9. C] What is Recession? 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;

10. = WHEN YOUR NEIGHBOR LOSES HIS JOB
C] What is Recession?
There is a joke that economists quote to explain the
Difference between “Recession & Depression”
RECESSION
= WHEN YOUR NEIGHBOR LOSES HIS JOB
DEPRESSION
= WHEN YOU LOSE YOUR JOB

11. D] What is a Business Cycle?
What goes up; Has to come
down;
Growing economy has to
come down if the production
rate of goods & services was more than the actual consumption;

12. E] Why Recession happens?
E1] OVER
PRODUCTION
E2] LOW
CONFIDENCE
LEVEL

13. E] Why Recession happens?
E1] OVER
PRODUCTION
PSEUDO DEMAND
ACTUAL NEED WAS
NOT THERE;
WRONG PROJECTIONS
COMPANIES
PRODUCED
MORE
A situation in which the
supply exceeds the nation’s
ability to consume what has
been produced;
Supply > Demand

14. E] Why Recession happens?
E2.1] Word of mouth
E2] LOW
CONFIDENCE
LEVEL
E2.2] Assignable Cause
E2.1] 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
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 is a downward spiral in
the economy;

15. E] Why Recession happens?
E2.1] Word of mouth
E2] LOW
CONFIDENCE
LEVEL
E2.2] Assignable Cause
E2.1] 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
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 is a downward spiral in
the economy;
Producers do not stock materials, they
reduce their productions, gets into the
cost reduction activities, worried about
the profitability, etc…

16. E] Why Recession happens?
E2.2] Assignable Cause
Bad Incidences Happening;
Example: September 11 Terrorist Attack in US;
International Airport block in Thailand;
Mumbai Attacked in India;
etc…
Series of such incidences
leading into a kind of War
Please see next slides, for details on business impact;

17. Terrorists’ Attack on 11th September in US
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
“Cost Reduction” activities
CONTINUED
IN NEXT SLIDE

18. Terrorists’ Attack on 11th September in US
Airline & Hotel Industries started
“Cost Reduction” activities
i] Reduce No. of flights
ii] Lay off people
iii] Salary reduction to
“Not laid off people”
In flight meals reduced
Low or No income to
spend and buy goods
They became careful due
to the fear of loss of job
Meals supplying company
got the hit
Demand for other goods
come down
Started saving money
instead of spending
Catering company now,
lays off people
Demand for other goods
come down

19. So, you can see how the hit on Airline and Hotel
industries can affect “Un-related” industries
in the end;
One industry can hit many other industries when the
confidence level of millions of consumers & producers
drastically comes down;

20. F] How to know recession?
Indicators to say a nation is in recession;
- People buying less stuff
Decrease in factory production
- Growing unemployment
- Slump in personal income
- An unhealthy stock market

21. Producers; Consumers;
G] How to come out of recession?
It is unhealthy for any nation to be in Recession;
So, Government will take certain countermeasures
to eliminate or reduce the Effect of recession for turnaround;
Important Point:
Today, it is a market Economy
Producers;
Can produce and
sell at their prices
Consumers;
Can decide to
buy or not;
Both Producers and Consumers are free to act; Not a forced action

22. G] How to come out of recession?
Hence, Government does not have direct control on Producers’ & the
Consumers’ behavior; But, they can influence millions of Producers &
Consumers with Government’s policies;
Government has 2 plans
Fiscal Policies
(By Govt.)
Monetary Policies
(By RBI)
Government influences the
economy by changing how
it (Government) spends
and collects money
RBI manipulates
the available supply of
money in the country

23. G] How to come out of recession?
Fiscal
Policies
Government influences the economy by changing
how it (Government) spends and collects money
1] Tax cuts for
businesses or
for individuals
More money
available for
spending
Demand picks
up; Market
can recover;
2] More Spending
by Govt. to
create jobs
Individuals get
salary and spend
money
3] Automatic
fiscal policy;
Unemployment
Insurance
Some income to
unemployed
people to spend

24. G] How to come out of recession?
Monetary
Policies
Government manipulates the available supply
of money in the country
1] Reduce reserve
ratio
More money
available for bank
to give loans
Demand picks
up; Market
can recover;
What is Reserve Ratio?
Each bank has to keep a high % of their assets in
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”

25. G] How to come out of recession?
Monetary
Policies
Government manipulates the available supply
of money in the country
1] Reduce reserve
ratio
More money
available for bank
to give loans
Demand picks
up; Market
can recover;
2] Lower the
interest rates
Individuals take
more loan

26. G] How to come out of recession?
Monetary
Policies
Government manipulates the available supply
of money in the country
1] Reduce reserve
ratio
More money
available for bank
to give loans
Demand picks
up; Market
can recover;
2] Lower the
interest rates
Individuals take
more loan
3] Use its own
reserved
money to buy
Govt. bonds
It becomes an
income to Govt.
to inject money
into the market

27. Nation’s recession is controlled by the actions of
I] 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, I
am 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;

28. I] WOW!!!!!!!! Currently, Slow Down Stage; Not yet in Recession
GDP Growth
Rate Down; But,
Still expected to be
Around 6% in India
Most of the developing
Economies like China,
India;
Currently,
in Recession
GDP Growth
Rate Negative;
Most of the developed
Economies like US,
Japan, Germany, etc

29. HOPING THIS TIME
RECESSION VANISHES
SOON SO THAT
INDIA GETS BACK
TO ITS STRONGER
GDP GROWTH RATE
OF 8% TO 10%
(THOUGH THE EXPERSTS
SAY IT WILL LAST TILL
Q3 OF 2009)