The most recent recession to hit the world’s economy, The Great Recession, occurred in the late 2000’s. In the book, The Economic Report of the President 2010, it is reported that, what would be the most devastating kick to the world’s economy began as a mild case of recession in the US. By the year of 2008, the impact had spread to the rest of the world beginning with the U.K, Germany and other countries which reported serious reductions in their real GDPs. The world was in an unexplainable financial crisis which consisted of high inflation rate and a very high rate of joblessness. From the figure below, the GDP it is evident how the GDP levels decreased to very low levels.
Source: Economics Help
Causes of the recession in the UK
Questionable housing policies and poor regulations of the financial sector can be said to be the major causes of this world crisis. The recession is believed to have began in the US and spread to the rest of the world. The housing policy intended to encourage home ownership was somehow inferior and made mortgages easy to obtain. House prices rose and according to Shiller (2008), the attraction to invest in housing was very high. In 2007, to the surprise of everyone, house prices began to fall; something which led to increased mortgage defaulting and saw a lot of people face home foreclosures. The figure below shows how the house prices changed as the recession approached. As the year 2007 approached, the prices were rising but began to fall through the year 2008 and 2009. This fall could be blamed for the beginning of the recession.
Source: U.S. Census Bureau New Sales
Poor financial market regulation also contributed majorly to the crisis. Reduced interest rates and relaxed loan standards encouraged individuals to obtain loans. Debt amounts rose and when house prices fell, financial institutions became the biggest losers especially in cases involving mortgage-backed securities. By the year 2008, the effects of the recession were at their worst as food and oil prices were very high and joblessness was also on the increase.
The Keynesian theory which talks about a circular flow of money in a normal economy can be a very good explanation for the great recession. According to the Knoop 2010, Keynes had very reliable consumption, monetary and investment theories. These theories explain the causes of recession in the manner people alter their spending habits.
Effects of the recession on mobile phone operators
When prices changes, the demand for a product also changes but this depends on the elasticity of the product. Price elasticity of demand indicates that demand responds to changes in prices (Reddy M.K. & Saraswathi.S.2007); meaning that the demand for mobile services was affected by the inflation in the recession. When prices rose during the recession, the demand for mobile services reduced due to a decline in spending. Therefore, the mobile operators experienced reduced revenues from sale of their services to consumers so they had to increase their services in order to survive the inflation.
It was during the year of 2009 when the recession ended but since then, most of the countries have not been able to recover fully from the impacts. Favorable employment rates have not been able to be attained with many people still jobless.
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