Economic downturns may be normal occurrence but it does not mean that it cannot hurt you. In Economics, recession refers to the period in a country's economy when there is slowing down of progress and rising inflation rates. Like a cycle, a country's economy is sometimes up and sometimes down. We just don’t feel it before because the economy hopefully bounces back fast. It is only now that recovery seems so slow and damage has become far-reaching with the crashes in the real estate industry as well as to the banking and insurance sectors.

So what makes an economic recession? What do you need to know about it and what is it all about?

1. Rising Costs of Living

Because of the slowing down of the economy, production will not be as active. This stems from the lesser demand that comes from the consumers. When this happens, prices will rise as there will be lesser products in the market than before. Basic commodities will usually rise especially those that people consider as basic necessities such as food, shelter and home. Oftentimes, what you will normally be able to buy for a specific amount money will not be as many. This is when we say that the value of the money lessened.

2. Job Cuts

During recessions, many companies will suffer from cash flow problems. This recession in particular is dangerous due to the collapse of and unwillingness to lend by the banks. Because of the lesser demand, more and more companies will shut down their production lines to cut costs. This leads to cutting off jobs just to make both ends meet. Currently, many companies in the United States have already cut tens of thousands of jobs. Although it does not sound good, these companies do not really have an option as often, they will need to let go of some employees to keep the company running and still employ the others. The best advice for this is to start looking for and or retraining for a plan B if your employer is possibly considering cutbacks or a term that I think is very pretentious...rightsize! Some industries are barely affected and you probably know if you are working in one of them already. You may want to start that business or take up that hobby you've always wanted to experience. Who knows, many people that have been forced to, have made themselves wealthy seemingly by accident when they found themselves upon desperate times.

3. Cutting Expenses

Because people do not have much money in their pockets, most of them will be scrimping on their expenses (see #1.). They will only buy things that they need. Some do this because they want to save their money while others do this because they don’t really have a choice, having a much lower income than before. This however contributes to the economic recession as low demand will also lead to low supply which can affect company earnings. When this happens, jobs may become at risk and companies may suffer from financial losses.

4. Political Turmoil

Although it is not often the case, most countries suffering from economic recession will have political turmoil. This is especially true if the country has not responded to the economic recession well and the situation has ballooned 10 times over. When this happens, people will naturally blame the people in the government and their policies. This is the time when people troop to the streets to protest or they announce their displeasure through surveys on job approval ratings of government officials.

5. Tax Breaks

Because of lesser income and less value for your money, the government tries to augment people's financial problems and also to help companies by giving people more money that they can spend on basic goods. They do this by giving back to their people a portion of their income—tax cuts.

If you are lucky enough to skirt through this most recent recession with most of your money and sanity intact, more power to you. If you are one of the unfortunate parties to lose your job or home, or both, you are not alone and will probably be viewed in a more positive light than previous recessionary "rightsizing" victims. "This too shall pass" and things will get better, if not slowly. Until then, hold your head high and take things one day at a time. Good Luck!