global recession and its impacts
TRANSCRIPT
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RecessionRecession
Presented ByPresented By
Amol KAmol KNimsarkarNimsarkar
PGDIM, MINDSPGDIM, MINDS
BangaloreBangalore
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Before understandingRecession,we need to understand the
marketEconomy and Market --1] TWO STAGES OF MARKET ECONOMY
2] TWO FACTORS OF MARKET; - DEMAND & SUPPLY
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a)- Growing Market Economy
b)- Declining Market Economy
1] TWO STAGES OF MARKET ECONOMY
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a)- Growing Market Economy
tarting Point = Willingness to buy
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b)- Declining Market Economy
arting Point = Unwillingness to buy
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ducer wants his demand always to be highnsumer wants his buying cost always to be low
Actually, Demand is the price at whi
consumer is ready to buy andproducer is ready to sell;
2] TWO FACTORS OF MARKET; - DEMAND & SUPPLY
Producer Price
Consumer Price
Usually, we think;Demand = Quantity
But, here Demand = Price;This is because,Price decides the Quantity of Sales;Competitive Price = More Demand;In competitive Price = Less Demand
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National Bureau of Economic Research(NBER) is the official agency in charge ofdeclaring that the economy is in a state ofrecession.
Recession is the economy shrinking for twoconsecutive quarters (=6 months) with adecrease in the GDP (Gross Domestic Product)growth.
GDP = Total value of all the reported goods andservices
produced by the people operating in the country
3] What is Recession?
GDP = MONEY VALUE OF {C + I + G + (X M)}
onsumptions, I = Gross Investments, G = Government Spendi
X = Exports, M = Imports
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GDP is a good indicator of an economy; Otherindicators could be;
-Unemployment Rate-Consumption Rate
-Actual Personal Income-Etc..A GDP, in simple terms, is used to gauge thehealth of an economy then
If GDP is growing, then market is growing due toincreased demand;
Note: If the recession continues for nextquarter,
(>6 months) then we go through
3] What is Recession?
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RECESSION
= WHEN YOUR NEIGHBOR LOSES HIS JOB
There is a joke that economists quote toexplain theDifference between Recession &
Depression
3] What is Recession?
DEPRESSION
= WHEN YOU LOSE YOUR JOB
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Growing economy hastocome down if theproduction rate of
goods & services wasmore than the actualconsumption;
4] What is a Business Cycle?
What goes up; Has tocomedown;
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5] Why Recession happens?
a)- OVERPRODUCTION
b)- LOWCONFIDENCELEVEL
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A situation in whichthe
supply exceeds thenationsability to consume
what has
been produced;
5] Why Recession happens?
PSEUDO DEMAND
ACTUAL NEED WASNOT THERE;
WRONG PROJECTIONS
COMPANIESPRODUCED
MORE
a)- OVERPRODUCTION
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Confidence Levelillions ofumers and
ucers after theymany job cuts,and coming down,panies bankruptcy,
5] Why Recession happens?
Consumers are fearing that they maylose their jobs; So, they have lessconfidence to spend money and buy
goods; This will result in reductionin demand in the market; Consumersstart saving money instead of spendingmoney; This is a downward spiral in
the economy;
b.1] Word of mouth
b.2] Assignable Cause
b.1] Word of mouth
b)- LOWCONFIDENCELEVEL
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Confidence Levelillions ofumers and
ucers after theymany job cuts,and coming down,panies bankruptcy,
5] Why Recession happens?
Consumers are fearing that they maylose their jobs; So, they have lessconfidence to spend money and buy
goods; This will result in reductionin demand in the market; Consumersstart saving money instead of spendingmoney; This is a downward spiral in
the economy;
b.1] Word of mouth
b.2] Assignable Cause
b.1] Word of mouth
b) LOWCONFIDENCELEVEL
Producers do not stock materials, theyreduce their productions, gets into the
cost reduction activities, worried aboutthe profitability, etc
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Incidences Happening;
mple: September 11 Terrorist Attack in US;
International Airport block in Thailand;Mumbai Attacked in India;
etc
Series of such incidencesleading into a kind of War
se see next slides, for details on business impact;
5] Why Recession happens?
b.2] Assignable Cause
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Terrorists Attack on 11th September in US
Created fear in people
People cancelled their travel plans
Airlines & Hotel Industries badly hit
Resulted in low occupancy rates
Airline & Hotel Industries offered discounts,
gift coupons, to attract people
But, still, no improvement in occupancyrate
Airline & Hotel Industries startedCost Reduction activities CONTINUED
IN NEXT SLIDE
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Terrorists Attack on 11th September in US
i] Reduce No. of flights ii] Lay off peopleiii] Salary reduction toNot laid off people
In flight meals reducedLow or No income to
spend and buy goods
They became careful due
to the fear of loss of job
Meals supplying companygot the hit
Catering company now,lays off people
Demand for other goodscome down
Started saving moneyinstead of spending
Demand for other goodscome down
Airline & Hotel Industries startedCost Reduction activities
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, you can see how the hit on Airline and Hotel
dustries can affect Un-related industri
the end.
ne industry can hit many other industries when the
nfidence level of millions of consumers & produceastically comes down.
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Indicators to say a nation is in recession;
- People buying less stuff- Decrease in factory production
- Growing unemployment- Slump in personal income- An unhealthy stock market
6] How to know recession?
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Government has 2 plans
Fiscal Policies(By Govt.)
Monetary Policies(By RBI)
, Government does not have direct control on Producerers behavior; But, they can influence millions of Produceers with Governments policies.
Government influences theeconomy by changing howit (Government) spendsand collects money
RBI manipulatesthe available supply ofmoney in the country
7] How to come out of recession?
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7] How to come out of recession?
Government influences the economy by changihow it (Government) spends and collects mone
1] Tax cuts forbusinesses or
for individuals
More moneyavailable for
spending
Demand picksup; Market
can recover;
2] More Spendingby Govt. to
create jobs
Individuals getsalary and spend
money
3] Automaticfiscal policy;Unemployment
Insurance
Some income tounemployed
people to spend
FiscalPolicies
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7] How to come out of recession?
1] Reduce reserve
ratio
More moneyavailable for bank
to give loans
Government manipulates the available supplof money in the countryMonetaryPolicies
What is Reserve Ratio?
Each bank has to keep a high % of their assets inRBI (Reserve Bank of India). These assets do notearn any interest to banks. This money kept inRBI is called Reserves; RBI sets certain ratioof this reserves and it is called Reserve Ratio
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7] How to come out of recession?
1] Reduce reserve
ratio
More moneyavailable for bank
to give loans
2] Lower theinterest rates
Individuals takemore loan
Government manipulates the available supplof money in the countryMonetaryPolicies
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7] How to come out of recession?
1] Reduce reserve
ratio
More moneyavailable for bank
to give loans
Demand picksup; Market
can recover;3] Use its own
reservedmoney to buy
Govt. bonds
It becomes anincome to Govt.to inject money
into the market
Government manipulates the available supplof money in the countryMonetaryPolicies
2] Lower theinterest rates
Individuals takemore loan
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8] Think !!!!
RBIs Power or Governments Power is double-edgedsword; Sometimes, their policies to recover from recessiocan be counter-productive and it may further worsen thesituation;
Nations recession is controlled by the actions ofeverybody living
in that country;
If we advise our people to save money, then, the multiplication effect is thatthe demand will not pickup and recession will continue; Very peculiar!! But, Iam not misguiding you; Just think from a macro level, if everybody in thecountry stops spending, what will happen?
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ost of the developingconomies like China,
ndia;
Currently,Slow Down
Stage; Not yetin Recession
Currently,in Recession
Most of the developedEconomies like US,apan, Germany, etc
GDP GrowthRate Down; But,
Still expected to bAround 6% in India
GDP GrowthRate Negative;
8] WOW!!!!!!!!
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HOPING THIS TIMERECESSION VANISHES
SOON SO THATINDIA GETS BACK
TO ITS STRONGER
GDP GROWTH RATE
OF 8% TO 10%
(THOUGH THE EXPERSTSSAY IT WILL FINISH TILLQ3 OF 2009)
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References:References:
Google search engine.Google search engine.
McKinsey reports.McKinsey reports.
World economic forumWorld economic forum
World social forumWorld social forum
Harvard business reviewHarvard business review
Accountancy magazineAccountancy magazine The EconomistsThe Economists
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Amol K Nimsarkar
PGDIM, MINDS
Bangalore
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