Slump Decline

Slump Decline

Slump, decline in economic activity marked by widespread .unemploymentand a fall in production, profits and prices. It is sometimes called a depression or, in mild cases, a recession. A slump usually follows a boom a period of full employment, high production and rising prices.

The reversal of boom conditions and the decline into a slump is caused by a fail in total spending which, if unchecked, tends t0 develop into a cumulative movement spreading throughout the economy. A fall in sales will force some firms to reduce production by dismissing employees or hiring them only part time. This falling demand for labour means reduced incomes and spending, which in turn create a further decline in output and employment elsewhere. Prices and profits will tend to be cut in an effort to clear swollen stocks of unsold goods in shops and warehouses. Consequently business men will tend to take a pessimistic view of the future, reduce expenditure on new buildings and equipment and so unwittingly give an extra push to the downward movement of the slump.

A sharp decline in demand sufficient to generate a slump usually occurs in the durable or capital goods section of the market because a householder's decision to buy a new refrigerator or a business man's plan to build a new factory can be postponed indefinitely or advanced suddenly, so creating the possibility of wide fluctuations in total spending. By contrast, the total demand for non-durable goods such as food and transport is less easily deferred and much more stable.

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