Recession of 1953
Encyclopedia
In the United States the Recession
of 1953 began in the second quarter of 1953 and lasted until the first quarter of 1954. The total recession cost roughly $56 billion.
inflationary period and later in the year more funds were transferred into national security
. Further inflation
was expected into 1952 and the Federal Reserve set in motion restrictive monetary policy
.
. And finally, the actions of the Federal Reserve led to an increase in consumer expectation of an inevitable recession which led to an even further drop in aggregate demand and an increase in savings. Thus, the recession of 1953 began on the demand side. The sharp three quarter decline with a clear trough, followed by a sharp recovery means that the 1953 recession is an exampled of a V-shaped recession.
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
of 1953 began in the second quarter of 1953 and lasted until the first quarter of 1954. The total recession cost roughly $56 billion.
Preceding the Recession
The recession from 1953 to 1954 occurred because of a combination of events during the earliest parts of the 1950s. In 1951, there was a post-Korean WarKorean War
The Korean War was a conventional war between South Korea, supported by the United Nations, and North Korea, supported by the People's Republic of China , with military material aid from the Soviet Union...
inflationary period and later in the year more funds were transferred into national security
National security
National security is the requirement to maintain the survival of the state through the use of economic, diplomacy, power projection and political power. The concept developed mostly in the United States of America after World War II...
. Further inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
was expected into 1952 and the Federal Reserve set in motion restrictive monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
.
Causes
The expected inflation never happened, but the policy was still implemented. During this time, the Treasury also lengthened the maturity of the national debt and pursued flexible interest rate policies. Alongside these policies, the Treasury also began to do debt-refunding which only increased interest rates further and subsequently issued a low percentage bond. The Federal Reserve recognized the increasing interest rates and decided to allow more reserves to be available. This worked, but interest rates plummeted sending the US into a demand-driven recession of output and employment. GDP declined because of government spending and a decline in investment.Type of recession
The recession of 1953 was demand-driven because the dramatic changes of interest rates earlier in the year led to an increase in pessimism towards the economy which led to a decrease in aggregate demand. Before the Federal Reserve stepped in to increase availability of reserves, the increase in interest rates continued to decrease aggregate demandAggregate demand
In macroeconomics, aggregate demand is the total demand for final goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a...
. And finally, the actions of the Federal Reserve led to an increase in consumer expectation of an inevitable recession which led to an even further drop in aggregate demand and an increase in savings. Thus, the recession of 1953 began on the demand side. The sharp three quarter decline with a clear trough, followed by a sharp recovery means that the 1953 recession is an exampled of a V-shaped recession.