April 10 2016

Grade 12 Economics

Dom Desmarais

Economic Turmoil: Impacts of the Downturn on the Average Person

Downturn vs. Recession
Economic downturn:
- A decline in economic, business, or another activity
- The rate of economic growth slows down and possibly enters into recession
- Characteristics include, yet are not limited to, negative economic growth, rising
unemployment, falling asset prices, falling investments, increasing government borrowing,
etc.
Economic recession:
- A significant decline in economic activity spread across the economy
- The rate of demand is low and the market shrinks, likely preceded by a downturn
- Characteristics include, yet are not limited to, severe negative economic growth, significant
increase in unemployment, businesses having to reduce costs, less funds being available for
spending purposes, etc.
Impacts of a Downturn
Employment
Several businesses must reduce outgoing costs, and a significant number of these companies
decide to let go of certain employees in order to save funds.
Impacts of employment loss:
- Decreased stability of individuals and families
- Negative status, self-worth, health, and well-being
- Potential induced depression, alcoholism, and denial
- Struggling to pay bills and fund living
- Inability to experience a satisfying lifestyle
Lowering of wages:
- Costs are reduced by lowering wages
- Hours of work may be decreased as well
- Temporary employees without contracts are more commonly affected
Strategies and tips:
- Short-term strategies include filing an unemployment claim, borrowing funds from friends or
family, and accepting a lower-paying job
- Long-term strategies include collaborating with headhunters to locate a higher-paying job,
developing ones education and qualifications, and relocating to a new area
Family Life
Often, when individuals are unable to locate employment and experience the stress of income
loss, they result to borrowing funds from relatives or friends, which may create tense situations.
Impacts of family life complications:
- Necessity of changing life plans (including selling ones home, relocating schools and
cancelling vacations)
- Potential increase of child abuse cases

April 10 2016

Grade 12 Economics

Dom Desmarais

Strategies and tips:

- Rather than engaging in pricey family activities, participate in cost-effective alternatives
- Instead of eating out at restaurants, staying in hotels, or paying to go to the cinema, one
should organize a family picnic, go camping, or rent a film from the comfort of their own home
Lifestyle Changes
Due to a limited income, one must ration their spending towards the items that are of most
necessity and priority to their life, while finding more cost-efficient alternatives as well.
Impacts of reduced income:
- Reduced entertainment possibilities
- Alternative dining
- Cutting back on extracurricular activity expenses
- Fewer expenses in general
Compromise examples:
- Tim Hortons instead of Starbucks or no coffee at all
- Renting movies instead of going to the theatre
- Reducing expenses on clothing
- Altering cosmetic needs or skipping the blow-out at the hair salon
- Limiting luxuries, such as spa services and car detailing
Strategies and tips:
- One should limit their unnecessary expenses by compromising for their basic needs
- It is crucial to prioritize which expenses are of most importance, and to avoid the nonessential
spending of funds
Investments
During a recession, investing in non-residential investments may not be feasible for many.
Impacts of investment changes:
- Many put their investments of hold
- Those who did choose to invest often did so due to the reduced expense of stocks
- May cause a disaster concerning retirement accounts and savings accounts
Tips and strategies:
- One should ensure that using their retirement funds to pay bills is a last resort
- If one must withdraw funds, they should only withdraw small amounts
- Funds should only be used to pay for essentials such as mortgage, car payments and utilities
Taxes
Recessions cause a decline in revenue from taxes on all fronts.
Impacts of limited tax revenue:
- Firms making less profit leads to lower corporation taxes for the government
- Workers making less money leads to lower income taxes
- Less expenditures leads to lower leads to lower VAT payments
- Lower house prices and few housing transactions lead to lower stamp duties

April 10 2016

Grade 12 Economics

Dom Desmarais

- A stamp duty is the tax placed on legal documents, usually in the transfer of assets or
property
Financial Crisis (2008)
Financial crisis (2008):
- A situation in which the value of financial institutions or assets dropped rapidly
- Started with the bursting of an 8 trillion dollar housing bubble
- Prices of home were steadily increasing with demand, before it burst causing all real
estate prices to drop significantly
Impacts of the financial crisis (2008):
- Forced cutbacks in spending and low consumption of goods
- Instigated a collapse in business investments
- Resulted in severe unemployment rates
- Loss of 8.4 million jobs in the U.S. labour market
- Highest unemployment rate since the Great Depression
Great Depression (1929-1939)
Great Depression (1929-1939):
- A situation in which the recession has reached long and severe heights in the economy or
market
- Stated with the stock market crash in October 1929
- Regular recession during the summer of 1929, while stock prices continued to rise
until fall, when the anticipation of a rise became indefinite
- Stock purchases rose on October 24, 1929, as the market bubble burst
- A record 12.9 million shares were trade on Black Thursday
- On Black Tuesday, 5 days later, another 16 million shares were traded in
panic
- Millions of the shares became worthless and those investor went bankrupt
Impacts of the Great Depression (1929-1939):
- Consumer spending and investing dropped significantly
- In 1933, during its worse condition, 13-15 million Americans were unemployed, and half of the
countrys banks had failed
- World War II placed the American industry back into gear