What causes an economic recession is a much debated topic. However, the universal consensus about this
is that an economic recession is caused due to the
actions that are taken in order to control the supply of money in the economy. It is the
responsibility of the Federal Reserve to maintaining a perfect balance between the factors
such as interest rates, money supply, and inflation. When Federal Reserve fails to maintain
this balance, the economy goes out of control
causing an economic recession. This is precisely what has happened in the economic recession of
2007, where the Federal Reserve’s policy of infusing money to the market has maintained a lower rate of interest and high inflation.
Economic recession can also be caused by several other factors such as sudden rise in price of oil
or a war. However, at these times, the economy
slows down for a shorter period and generally tends to get recovered soon.