prince recession fundaa

8/13/2019 Prince Recession Fundaa

1/30


2/30

Before, understanding Recession,

we need to understand the market

economy;

A] TWO STAGES OF MARKET ECONOMY

B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY


3/30

A1] Growing Market Economy

A2] Declining Market Economy

A] TWO STAGES OF MARKET ECONOMY


4/30

A1] Growing Market Economy

Starting Point = Willingness to buy


5/30

A2] Declining Market EconomyStarting Point = Unwillingness to buy


6/30

Producerwants his demand always to be highConsumerwants his buying cost always to be low

Actually, Demand is the price at which

consumer is ready to buyandproducer is ready to sell;

B] 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;


7/30

Recessionis the economy shrinking for two

consecutive quarters (=6 months) with a

decrease in the GDP (=Gross Domestic Product)

GDP = Value of all the reported goods and services

produced by the people operating in the country

C] What is Recession?

GDP = MONEY VALUE OF {C + I + G + (XM)}

C = Consumables, I = Gross Investments, G = Government Spending,X = Exports, M = Imports


8/30

GDP is a good indicator of economy; Other

indicators could be;

-Unemployment Rate

-Consumption Rate

-Actual Personal Income-Etc..

If GDP is growing, then market is growing due to

increased demand;



9/30

GDP is a good indicator of economy; Other

indicators could be;

-Unemployment Rate

-Consumption Rate

-Actual Personal Income-Etc..

If GDP is growing, then market is growing due to

increased demand;

Note: If the recession continues for next quarter, (>6

months) then we go through DEPRESSION

Economy;



10/30

RE ESSION= WHEN YOUR NEIGHBOR LOSES HIS JOB

There is a joke that economists quote to explain the

Difference between Recession & Depression


DEPRESSION= WHEN YOU LOSE YOUR JOB


11/30

Growing economy has tocome down if the

production

rate of goods & services was

more than the actualconsumption;

D] What is a Business Cycle?

What goes up; Has to comedown;


12/30

E] Why Recession happens?

E1] OVERPRODUCTION

E2] LOW

CONFIDENCELEVEL


13/30

A situation in which the

supply exceeds the nations

ability to consume what hasbeen produced;

Supply > Demand


PSEUDO DEMAND

ACTUAL NEED WAS

NOT THERE;

WRONG PROJECTIONS

COMPANIES

PRODUCEDMORE

E1] OVERPRODUCTION


14/30

Low Confidence Level

of Millions of

consumers and

producers after they

hear many job cuts,

Demand coming down,

Companies bankruptcy,

etc


Consumers are fearing that they may

lose their jobs; So, they have less

confidence to spend money and buy

goods; This will result in reductionin demand in the market; Consumers

start saving money instead of spending

money; This is a downward spiral in

the economy;

E2.1] Word of mouthE2.2] Assignable Cause

E2.1] Word of mouth

E2] LOWCONFIDENCELEVEL


15/30

Low Confidence Level

of Millions of

consumers and

producers after they

hear many job cuts,

Demand coming down,

Companies bankruptcy,

etc


Consumers are fearing that they may

lose their jobs; So, they have less

confidence to spend money and buy

goods; This will result in reductionin demand in the market; Consumers

start saving money instead of spending

money; This is a downward spiral in

the economy;

E2.1] Word of mouthE2.2] Assignable Cause

E2.1] Word of mouth

E2] LOWCONFIDENCELEVEL

Producers do not stock materials, they

reduce their productions, gets into the

cost reduction activities, worried aboutthe profitability, etc


16/30

Bad Incidences Happening;

Example: September 11 Terrorist Attack in US;

International Airport block in Thailand;

Mumbai Attacked in India;

etc

Series of such incidences

leading into a kind of War

Please see next slides, for details on business impact;

E] Why Recession happens?E2.2] Assignable Cause


17/30

Terrorists Attack on 11thSeptember in USCreated fear in peoplePeople cancelled their travel plans

Airlines & Hotel Industries badly hitResulted in low occupancy rates

Airline & Hotel Industries offered discounts,

gift coupons, to attract peopleBut, still, no improvement in occupancyrateAirline & Hotel Industries startedCost Reduction activities CONTINUEDIN NEXT SLIDE


18/30

Terrorists Attack on 11thSeptember in US

i] Reduce No. of flights ii] Lay off people iii] Salary reduction toNot laid off people

In flight meals reduced Low or No income tospend and buy goods They became careful dueto the fear of loss of job

Meals supplying companygot the hitCatering company now,

lays off people

Demand for other goodscome down Started saving moneyinstead of spending

Demand for other goods

come down

Airline & Hotel Industries startedCost Reduction activities


19/30

So, you can see how the hit on Airline and Hotel

industries can affect Un-relatedindustriesin the end;

One industry can hit many other industries when the

confidence level of millions of consumers & producersdrastically comes down;


20/30

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

F] How to know recession?


21/30

It is unhealthy for any nation to be in Recession;So, Government will take certain countermeasuresto eliminate or reduce the Effect of recession for turnaround;

Important Point:

Today, it is a market Economy

Producers;Can produce andsell at their prices

Consumers;Can decide to

buy or not;

Both Producers and Consumers are free to act; Not a forced action

G] How to come out of recession?


22/30

Government has 2 plansFiscal Policies

(By Govt.) Monetary Policies(By RBI)

Hence, Government does not have direct controlon Producers & theConsumers behavior; But, they can influence millions of Producers &Consumers with Governments policies;

Government influences the

economy by changing how

it (Government) spendsand collects money

RBI manipulates

the available supply ofmoney in the country



23/30

G] How to come out of recession?Government influences the economy by changinghow it (Government) spends and collects money

1] Tax cuts for

businesses or

for individualsMore money

available for

spendingDemand picks

up; Market

can recover;2] More Spending

by Govt. to

create jobs

Individuals get

salary and spend

money3] Automatic

fiscal policy;

Unemployment

Insurance

Some income to

unemployedpeople to spend

FiscalPolicies


24/30


1] Reduce reserve

ratio

More money

available for bank

to give loans

Demand picks

up; Market

can recover;

Government manipulates the available supplyof 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


25/30


1] Reduce reserve

ratio

More money

available for bank

to give loans

Demand picks

up; Market

can recover;2] Lower the

interest rates

Individuals takemore loan



26/30


1] Reduce reserve

ratio

More money

available for bank

to give loans

Demand picks

up; Market

can recover;3] Use its own

reserved

money to buy

Govt. bonds

It becomes an

income to Govt.

to inject money

into the market


2] Lower the

interest rates

Individuals takemore loan


27/30

I] WOW!!!!!!!!RBIs Power or Governments Power is double-edged

sword; Sometimes, their policies to recover from recession

can be counter-productive and it may further worsen thesituation;

Nations recession is controlled by the actions of

everybody living

in that country;

If we advise our people to save money, then, the multiplication effect is that

the demand will not pickup and recession will continue; Very peculiar!!!!! But, I

am not misguiding you; Just think from a macro level, if everybody in thecountry stops spending, what will happen?


28/30

Most of the developingEconomies like China,India;

Currently,Slow Down

Stage; Not yetin Recession

Currently,in Recession

Most of the developed

Economies like US,Japan, Germany, etc

GDP GrowthRate Down; But,

Still expected to be

Around 6% in India

GDP Growth

Rate Negative;

I] WOW!!!!!!!!


29/30

HOPING THIS TIME

RECESSION VANISHESSOON SO THAT

INDIA GETS BACK

TO ITS STRONGERGDP GROWTH RATE

OF 8% TO 10%

(THOUGH THE EXPERSTSSAY IT WILL LAST TILL

Q3 OF 2009)


30/30

Hope we r aware now

njoy

prince recession fundaa

Documents