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ecession is a drop phase of the business lifecycle. In this paper, I'm going to elaborate on the reasons of recessions in general and the possible reasons credited for the current recession. In addition, I will explore into the effect of this recession on developing countries and the possible policy responses.

1.1. REASONS OF RECESSION

Recession can be attributed to several major factors which can arise concurrently. It can be attributed to either significant drop in prices, or significant increases in prices. The first indicates that the GDP is decreased when people may spend less money. On the other hand, an increase in price may also diminish private and public spending and as a result, decreasing the GDP. Few of the major causes of recession are inflation, currency crisis, speculation, national debt, and so on.

There are the external reasons of recession which can be attributed to wars and other factors which are beyond the control of a particular economy. Aside from these reasons, other reasons can be high oil prices (as most countries depends upon oil import for industrial growth), weather conditions, some kind of national calamities among others. Several other economic factors also affect recession factor like, lower interest rates which adversely affect savings of households and accordingly banks. Since there is very little savings, banks cannot afford providing loans and that causes severe bottle neck for major infrastructure project which as a final point lead to slow economic growth and impending recession.

Even though the precise causes of recession are still a enigma, it is commonly agreed that recession is primarily caused by the actions taken to control the money supply in the economy. Thus, in the United States many economists think the reason that we went into recession was because of the Federal Reserve. This is because that it is the Federal Reserve responsibility and job to sustain an ideal balance between money supply, interest rates and inflation.

There is another theory which ascribes the causes of economic recession to the events that hurt particular firms or industries rather than events that impact the entire economy. The reason that makes economists support this theory returns to the negative effect of recession on some industries while other industries seem to thrive during these hard times. The economists believe that this happens because either a major innovation or a change in the price of a key item can adversely affect some firms. This adverse effect leads them to lay off workers and reduce their production, which slows down that industry even further because their demand is greatly reduced. It is also believed that each recession has a unique cause, while others think those recessions usually only have a single cause. Moreover, there are some economists who believe that globalization has changed the nature of the business cycle and this is what is caused recession.

1.2. HISTORY OF RECESSION

The first recession of the United States can be traced back to the period between 1797 and 1800. It was called the panic of 1797, and it was primarily caused by the deflating effects of the Bank of England as they crossed the Ocean to American soil. The commercial real estate markets were greatly affected by this recession. Britain’s economy was in a strained state already, becaus