Spare capacity in the Economy.

amandstu · 03-10-2013 11:59am #1

This is a theoretical question I suppose.

Imagine an economy where people are feeling confident and by and large ,within their idividual (and corporately individual) contraints they feel free to spend and invest.

Now imagine a shock to this economy and people prefer to retrench .
The question I have is what would be the maximum difference between these 2 situations that could occur over a set period (1 month , I year..)

If you measure it in terms of overall spending I wonder if could it drop by 50% ? More?
Are there any historical records that show what is possible.

Is there a league table of economic disasters?

Geuze · 03-10-2013 1:02pm

A drop of 10% in output/spending in one year would be deemed very unusual, and a very serious recession.

A cumulative drop of 25% over a few years is also very severe, though not unheard of.

The Great Depression saw output drop from peak to trough of maybe 30% over 4 years, with unemployment up to 25%.

Spare capacity in the Economy.

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