How Recessions Work

Must Come Down

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­Economists say the U.S. economy was expanding steadily from early 1991 to early 2001. So why did it stop? Why couldn't it keep spiraling upward forever?

There are all kinds of things that can change the course of the economy, just as there all kinds of things that can change the demand for a particular product. In some cases, a recession might be kicked off by over-production -- a situation in which the supply exceeds the nation's ability to consume.


One factor that generally plays a role in a recession, whether or not it is the cause, is the confidence level of the millions of consumers and producers. If consumers stop feeling confident about their job security or the value of their investments, they won't buy as much stuff. In the current recession, a lot of people who have been laid off are spending as little as possible, and many people who fear they may be laid off are also saving their money.

Just as in an expanding economy, things tend to snowball in a contracting economy. There are thousands of different elements in this downward spiral; you can see the snowballing effect in any number of specific situations. In the next section we'll examine the effects of September 11th on the economy.