Please enable JavaScript.

Coggle requires JavaScript to display documents.

RECESSION (CONSEQUENCES (On firms (Falling Profits (Negative economic…

- - - - Negative economic growth
        Fall in purchasing power of households ⤶
        Fall in dd for firms’ goods and services ⤶
        (assuming normal goods)
        Fall in total revenue ⤶
        Fall in profits ⤶
        Affect firms' survival ⤶
    - - Negative economic growth
        Decreases firms’ and consumers’ confidence ⤶
        Makes planning for investment more difficult ⤶
        Consumers cut back on spending ⤶
        (→ fall in dd for firms’ g&s → reduced profitability of firm)
        Firms face uncertainty of future dd for their g&s ⤶
        Decrease in expected yields ⤶
        Leftward shift of the MEI curve ⤶
        Volume of investment decreases ⤶
  - - - Fall in direct taxes collected
        
        H/Hs see a fall in income → pay lesser personal income tax
        
        Increase in no. of people who are unemployed → unemployed have no income and thus do not pay any personal income tax.
      - Fall in indirect taxes collected
        
        H/Hs see a fall in income → fall in purchasing power → fall in ability and willingness to purchase g&s → fall in Cd → fall in GST collected.
      - Increase in government expenditure:
        
        Increase in spending on unemployment (uN) benefits.
  - - - Fall in national income
        ⤷ (Assume pop. size constant)
        ⤷ Fall in real income per head
        ⤷ Fall in purchasing power
        ⤷ Access to a smaller amount of goods & services Material SOL decreases, ceteris paribus.
    - - Fall in real output produced
        Firms produce smaller quantity of g&s ⤶
        Fewer workers required ⤶
        Increase in demand deficient unemployment ⤶
        Stress, depression, higher crime rates, etc. ⤶
        Quality of life worsens ⤶
        Non-Material SOL decreases, ceteris paribus ⤶