Is the U.S. Headed for a Recession?

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A recession is an extended decline in business. It occurs when the gross national product decreases for two quarters in a row, or for about six months. Unemployment rises and production of goods lowers. During a recession, people on average make less money and spend less money. This means that businesses also make less money, making the problem worse.

There are several signs that the U.S. economy is currently headed for a recession. The housing market fell sharply in 2007. Prices on home sales dropped, and construction of new homes declined as well. Also, the stock market has dropped significantly in recent weeks. The unemployment rate is at a two-year high. All of these factors, experts say, are signs that the United States could be falling into a recession.

President Bush has proposed a plan to stimulate the economy. Under the plan, the government would offer up to $150 billion in tax breaks and help for businesses and the unemployed. The details of the plan are being worked out. Lawmakers hope to be able to put a stimulus plan into effect in the next two months.

On January 22, the Federal Reserve Bank, or Fed, made its biggest single cut in interest rates in more than 20 years. By lowering interest rates, the Fed is enacting expansionary monetary policy to reduce the risk of a recession. Lower interest rates encourage more lending. More lending increases consumer spending and investment. The Fed hopes this action will trigger growth in GDP and lower unemployment. The U.S. Treasury also hopes the Fed’s action will increase international confidence in the U.S. economy and help stabilize world financial markets.

Related Links

  • Bush Calls for $145B Economic ‘Shot in Arm’
    Discusses the state of the economy and the details of the proposed stimulus package.
    (Source: PBS, January 18, 2007)
  • Stimulus Plan May Be Ready by March
    Article covering the coming recession, and the bipartisan agreement that a stimulus package must be agreed on and put into effect soon.
    (Source: Reuters, January 20, 2007)
  • What is a Recession?
    Question and Answer about the definition of a recession and why a recession is bad. Site includes links to other basic articles about the economy.
    (Source: About.com)
  • Fed slashes rates in shock move
    Article about the Fed’s surprise cut of interest rates and what it means for the future.
    (Source: BBC, January 22, 2007)

Critical Thinking Questions

  1. Causes and Effects
    Identify three signs that the U.S. is currently headed for a recession, and briefly explain why each sign is bad for the economy.
  2. Synthesize
    How is the average citizen affected by a recession?
  3. Draw Conclusions
    How will the proposed $150 billion stimulus package help keep the U.S. out of a recession?

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