Econ 2.4 Summary

Economics 2.4 Internal

Frannie Aquino

A recession is a period of temporary economic decline during which trade and industrial activity are reduced. In 2008-2009, New Zealand was in recession. This can be seen with the Department of Labor figures, where the percentage change in GDP was at

-1.25%, which means that output was falling. When in recession, unemployment increases because household incomes, business profits and GDP decrease, so unemployment is increased because of the global recession. Since household income decreases, their spending decreases, which means firms will earn less profit. Budget cuts will then need to be made so people are made redundant as less workers are needed to produce less. Making people redundant is a big way of cutting costs, so unemployment increases because people lose their jobs. This worsens the recession, as household spending will decrease even more because of people being made redundant, so firms will be receiving less

The demand for workers is decreasing because fewer workers are needed to produce less which decreases the amount of available jobs. Since less is going to be produced, employees make budget cuts and let off the workers who are no longer needed. This worsens the economy because as household income decreases, they won’t have as much money to spend so household spending decreases resulting in firms receiving less. They will no longer be able to afford luxury goods so will only buy the necessities. Government benefit increases as they help people without enough money to survive The decrease in demand for workers can be seen on the labor market graph with a shift of demand to the left from D to D1, because businesses are receiving less so will be producing less and will no longer need as many workers, so demand for workers decreases. Voluntary unemployment also increases because people are not willing to work at the lower equilibrium wage