In economics, there are five major types of economic recoveries predicted by most of the economists when economies recover out of phase of economic recession. So far, V, U, L, W, and K types of economic recoveries are experienced in the recovery phases out of recessions in the world. Here, I’m going to discuss the all possible types of economic recoveries on the basis of historical perspective.
Economies all over the world never be a steady state of growth. Instead most of them follow cyclic path ranging boom to depression. Most of the time, economy in depression can’t recovery like fairy tale but may follow unusual patterns. Here, I’m going to explain the types of economic recoveries what we call from the trough or depression.
Explanation of economic recession and depression
Trend of economic growth cannot be sustained for a longer time due to host of factors or reasons. You know that market economy is driven by the market forces demand and supply if the interventions are absent. Therefore, sometimes, it is possible that market may experience mismatch between demand and supply for a certain period of time.
What does economic recession means?
If there is considerable mismatch between demand and supply, given economy either stagnant or sinks deeper. And if the ongoing state of economy last upto one and half year, it is declared as economic recession.
Actually, such economic state or economic recession manifests drastic decline in demand for goods and services in market, job creation, GDP growth, revenue collection and overall standards of living.
Difference between economic recession and economic depression
In terms of economic depression, it is necessary that the economy in question should experience ongoing downturn or decline upto four years. In simple words, if the given economy is not showing any sign of economic recovery upto four years, such economy is bound to be in depression.
Unlike economic recession, the severity of economic depression affects more business activities and standards of living than that of economic recession.
Sometimes, economic depression takes more time, efforts, and resources or come out. Public sector or governing agencies have to pour much resources to bail out at the normal level.
Understanding types of economic recoveries
In the economists perspectives, after economic recession or depression, given economies follow not uniform but different paths of recoveries based on employed strategies.
So far, five major types of economic recoveries are pointed or predicted by the economists community like V, U, L, W, and K types of economic recoveries.
U and V types of economic recoveries
If the economy bounces back to its original state or level from which it sunk earlier within less than a year, we call it as V shaped economic recovery.
But, if the given economy takes more time than one year compare to V shaped economic recovery, it is termed as U shaped economic recovery.
Comparatively, V shaped economic recovery has less impacts on job loss, erosion of saving, degree of demand in market and standards of living than that of U shaped economic recovery.
Economically, both V and U types of economic recoveries take less time to recover from which they sunk earlier. On the other hand, L, W, and K, take much longer time and affect badly the growth of job creation, savings, GDP growth, and market demand.
Explaining L, W, and K types of economic recoveries
When the recovery of economy in discussion undergoes two repetition of recession after a brief recovery, such economy economists call as W shaped economic recovery. It is also called double dip recession. In other words, W shaped economic recovery takes more time to be like earlier state.
K shaped economic recovery
Suppose, if there is no uniform recovery of all the sectors of economy; and, only certain handful sectors or businesses experience better economic recovery with the help of government funds or assistance, this economic recovery is termed as K types of economic recoveries.
In K shaped economic recovery, most of the stakeholders experience further sink and downturn. While, handful companies and businesses experience unexpected booms on government relief and stimulus packages.
A K shaped economic recovery is characterized by huge economic disparities and inequalities. It takes much longer time to be equal with government efforts in the form of fiscal policy and monetary manuvering.
Assessing L shaped economic recovery
Finally, Let’s learn about L shaped economic recovery. Among all types of economic recoveries, L type of economic recovery takes much longer time to recover. It is not free from worst impacts on every sphere of economic life of people.
Obviously, if the recovery process is longer, it might cost much more on employment opportunities, savings, living standards, market demand and so on.
Last words on types of economic recoveries,
So far, I have explained the meaning and difference between economic recession and economic depression. I also explained why and how economic recovery paths are classified as V, U, W, L, and K shaped economic recoveries.
As I discussed earlier that no economy is absolutely shock proof or able to quick bounce back. It takes time as per the given situation and responsible factors.
Nevertheless, small scale businesses, blue colour workers, vulnerable sections have to bear the heat of economic stagnation in the form of loss of standards of living.
Now, let’s see the key takeaways from types of economic recoveries article.
Short summary on types of economic recoveries
Cyclic movement of economic growth and decline is part and parcel of modern day economics.
If the economy experience better growth, greater employment opportunities, savings, living standards, and so on, we call it economic boom.
Contrarily, if the same economy undergoes downturn from two to eighteen months, such downturn or decline we label as economic recession.
Comparatively, economic depression takes more time to recover from trough. Generally, economic depression takes upto four years to recover at the previous level or state.
Economic recovery is all about the degree of bounce back of given economy out of downturn or decline.
Not all economies suffering from unexpected downturn recover in the same path and degrees.
Some may experience V shaped economic recovery while other may take longer time like L shaped economic recovery.
U and V types of economic recoveries take less time to recover from trough to previous level.
V shaped economic recovery has hardly affect employment opportunities, savings, living standards due to quick bounce.
K shaped economic recovery manifest contradictory trend in recovery path. In such recovery, some experience boom while other sinks deeper.
Solved questions on types of economic recoveries
Here, for your more understanding, I’m going to provide useful questions on the types of economic recoveries. By reading these solved questions, you can feel comfortable in this topic.
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