Recession

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A recession is defined by a fall of a country's Gross National Product in two successive quarters. Combined with inflation this process is known as stagflation.

Recessions are mostly caused by economic shocks. The greatest, worldwide recession that humanity has ever experienced was the Great Depression (late 1920s and 1930s); other notable recessions include the Oil Crisis in the 1970s.

Q: Can someone please answer this question. Money cannot be created or destroyed. So what happens to all the money during a recession. Suppose you have 250 million people living in a huge hall and there is a recession in the hall, no money went into or left the hall. So where did all the money go?

A: Money actually can be destroyed. Prior to the Great Depression a huge wave of investing in the stock market had taken place which created artificially high prices of stock. This process was driven by the fact, that shares were being used as a collateral for loans in order to buy more stocks. When the economy showed signs of slowing and share prices plummeted, this caused an extensive domino effect. The investments lost their face value and the loans on them "went bad", which, among others, triggered a crisis of the banking system. In consequence, there was the famous rush on banks, with people not being able to access their deposits. They had disappeared. After this, people grew extremely wary of investment which resulted in extreme deflation.

While the amount of hard money (also referred to as Central Bank Money) can only be changed within certain restrictions, this is not the total amount of money that an economy relies on. This total amount is a multiple of the prior determined by factors like the speed of exchange and the reserve policy of a central bank.