Contraction
Contraction is a term used in economics and finance to describe a decrease in the size of an economy. It is usually measured by a decrease in the gross domestic product (GDP) or a decrease in the rate of economic growth. A contraction can be caused by a variety of factors, including a decrease in consumer spending, a decrease in business investment, or a decrease in government spending. It can also be caused by a decrease in the money supply or a decrease in the availability of credit. A contraction can last for a few months or even a few years, depending on the severity of the economic downturn.
History of Contraction
The term contraction was first used in the early 19th century by British economist David Ricardo. He used the term to describe a decrease in the size of an economy, which he believed was caused by a decrease in the money supply. Since then, the term has been used to describe a variety of economic downturns, including the Great Depression of the 1930s and the Great Recession of the late 2000s. In recent years, economists have used the term to describe a decrease in the rate of economic growth, rather than a decrease in the size of an economy.
Comparison of Contraction
| Type of Contraction | GDP Change | Rate of Economic Growth |
|---|---|---|
| Mild | -1% to -2% | -1% to -2% |
| Moderate | -2% to -3% | -2% to -3% |
| Severe | -3% or more | -3% or more |
Summary
Contraction is a term used in economics and finance to describe a decrease in the size of an economy. It is usually measured by a decrease in the gross domestic product (GDP) or a decrease in the rate of economic growth. A contraction can be caused by a variety of factors, including a decrease in consumer spending, a decrease in business investment, or a decrease in government spending. It can also be caused by a decrease in the money supply or a decrease in the availability of credit. For more information on contraction, visit the websites of the Federal Reserve, the World Bank, and the International Monetary Fund.
See Also
- Recession
- Depression
- Inflation
- Deflation
- Stagflation
- Gross Domestic Product (GDP)
- Money Supply
- Credit Availability
- Consumer Spending
- Business Investment
