War and Recession, Essay Example

Recession is a period in which economic activity slows down and the spending ability reduces considerably. This period of recession is mainly caused by the lack of circulating capital. This leads to a period of low capacity utilization as well as low production, decline in investment spending and reduction buyer power (Encarta 2007). Various economists have defined the hallmarks of recession. One most accepted and used definition is that it occurs when there is negative growth for two consecutive quarters (Shinksin 1974). Governments respond to recession through economic stimulus. This encompasses reduction in taxation as well as giving stimulus packages to stimulate spending as well as ease the credit crunch that comes with the recession.

War can contribute in countering the period of recession through two ways. First the populace that is widely involved in the war will be drafted by the government to serve in various capacities during the war. Their participation is appreciated by the state through hefty payouts and bonuses. This will increase the cash in the hands of the population. This will ensure that the spending power of the populace as well as the investment spending increases considerably. This increase therefore can easily spark a period of increased spending which can eventually lead to recovery (BPP 2009).

The second way that war can end recession is through the increased government contracts in times of war. The government is likely to spend more on provisions for the army. This includes army vehicles and tracks, uniforms as well as medical supplies. It is also similarly likely to spend more in purchasing food for the forces. This is likely to increase the cash flow in the country and thereby improve the recovery. The main way to reduce economic recession is to ensure that enough money flows from government reserves to the businesses (Global Ideas. Com). Through these two ways therefore, war can reduce the adverse effects of recession on the economy.

References

BPP learning Media (2009). Financial Accounting. London. BPP Publishers.

Global Ideas Bank (2010). Five ideas to end recession. Retrieved 07 march 2010. Available. http://www.globalideasbank.org/site/bank/idea.php?ideaId=1394.

Microsoft Corporation (2007). Encarta World English Dictionary. Definition of Recession. Retrieved 19 November 2008  Available http://encarta.msn.com/encnet/features/dictionary/DictionaryResults.aspx?refid=1861699686.

Shiskin, J (1974). The Changing Business Cycle.  New York Times: Dec 12 1974