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Recession? What does it mean?
Imagine a bakery making Agege bread, They buy
Flour
Sugar
Yeast
Pay salary
Pay taxes
Deposit cash in bank, banks use that deposit and creates loans.
An econony built by Agege bread
Ioaf cost N50, output 1000 so "GDP" is N50 x 1000 =N50,000
Imagine a bakery making Agege bread, They buy
Flour
Sugar
Yeast
Pay salary
Pay taxes
Deposit cash in bank, banks use that deposit and creates loans.
An econony built by Agege bread
Ioaf cost N50, output 1000 so "GDP" is N50 x 1000 =N50,000
Then crisis, and people lose jobs.
Instead of buying one Agege bread and day, they buy one every two days..
So bakery sells less bread, instead of 10,000 loaves they sell 5000
So "GDP" is N50 x 5000 = 25000
A 50% fall in output of Agege bread
Instead of buying one Agege bread and day, they buy one every two days..
So bakery sells less bread, instead of 10,000 loaves they sell 5000
So "GDP" is N50 x 5000 = 25000
A 50% fall in output of Agege bread
What happens? Well less Agege bread output means
less flour bought
less sugar bought
Less salary paid
Less cash deposited
So Agege industry states to infect other sectors like banking.
Those sectors also cut down on spending, pay less workers...a vicious cycle starts
less flour bought
less sugar bought
Less salary paid
Less cash deposited
So Agege industry states to infect other sectors like banking.
Those sectors also cut down on spending, pay less workers...a vicious cycle starts
As banks get less deposits from Agege bread, they start posting higher interest rates, thus who economy in peril
If Agege bread output falls for 3 months it's a contraction, for 6 months a recession.
A recession is falling in output for 6 months
If Agege bread output falls for 3 months it's a contraction, for 6 months a recession.
A recession is falling in output for 6 months
How do you kill a recession?
Simple. You spend
The Government can
1. Cut taxes so people can start buying more bread
2. Pay Agege bread makers so they hire back workers, start buying sugar and flour
3. Give banks deposits to replace deposits lost from Agege bread
Simple. You spend
The Government can
1. Cut taxes so people can start buying more bread
2. Pay Agege bread makers so they hire back workers, start buying sugar and flour
3. Give banks deposits to replace deposits lost from Agege bread
In summary, a recession is normal business cycle, but if you do bad policies (like closing border) you make Agege bread expensive to produce so the loaf price goes from N50 to N150.
Again this makes the bread expensive and reduces sales and cycle starts again
Again this makes the bread expensive and reduces sales and cycle starts again
