Causes of a reduction in borrowing by households
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Answer:
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By reducing aggregate demand, higher rates of saving and lower household spending may also reduce pressure on prices and wages and therefore interest rates, while more moderate rates of gearing will reduce households' exposure to negative economic shocks.
Answer:
define recession as a state wherein employment consistently falls.
In ancient times, countries avoided recession by attacking other countries. This was because labor was usually in agriculture which was seasonal. Many people would be unemployed while waiting for plants to grow, so they would use this time to go out and conquer territory during the military campaign season.
In this way, their productivity was maximized for the whole year. They would have zero idle time, yet have the possibility of sacking another country which would then be their extra revenue. That's why Rome naturally over-expanded -- because its people had nothing else to do.
This pattern changed when machines were invented. People then could use their labour to work on machines instead of invading other countries. Empires then became smaller -- Britain abandoned India and the French abandoned some of its colonies.
So now, countries must keep their labour employed in producing things. Otherwise, people will have nothing to do and start doing crime or rebelling like in the ancient past.
The problem is that, because of the Commercial system, production nowadays is for profit. If the produced goods and services become unprofitable, then they are stopped and people lose employment. But goods and services naturally become unprofitable after some time. You really only need one iPhone or one house. You might like listening to initially, and actually pay to watch her concerts, but get tired of it after some time, unless she can keep on changing her style and offering something new, like what does (who seems always employed).
That's why recessions are regular.
Thus, in the current Commercial system, the main factor in recessions is from falling sales. An easy way to know the general profits in an economy is to look at bank profits. A decline of bank profits mean a fall in general profits, which then could signal a recession.
The 1929 Crash, 1997 Asian Crisis, and 2008 Financial Crises were caused by giant banks that lost most of the people's money, which then caused employment to fall.
Specifically, it was buying on margin (for buying stocks), hot money (for buying Asian stocks & real estate), and derivatives (for buying sub-prime homes) respectively. They collapsed when the sale of stocks, real estate, and subprime homes stopped respectively.
There are other recessions caused by non-banks like the 1970s stagflation which was caused by a stop in oil sales (even if it caused a jump in profits for OPEC). So between falling profits and falling sales, the root cause is evidently the latter, and this is what GDP measures, and why GDP indicates growth or recessions.
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