In a recession, which of the following tends to occur?

During a recession, economic activity slows down significantly, leading to various negative consequences for individuals and businesses. One of the most notable outcomes of a recession is a rise in personal bankruptcies. This increase occurs for several reasons.

First, job losses or reduced working hours are common as companies may need to cut costs to survive in a slower economy. As individuals lose their income or experience reduced earnings, they often struggle to meet their financial obligations, such as mortgage payments, credit card bills, and other debts. This scenario increases the likelihood of individuals declaring bankruptcy, as they may find themselves unable to repay what they owe.

Moreover, during a recession, consumers tend to tighten their spending due to uncertainties about future employment and income. As a result, many businesses experience decreased sales, further exacerbating the economic downturn and leading to more layoffs and closures. This cycle feeds into the rising rates of personal bankruptcies, as more individuals find themselves in dire financial straits.

In contrast, increased job security, higher consumer confidence, and higher investments in the stock market typically characterize a thriving economy rather than a recession. During economic downturns, these factors usually decline, contributing to the challenges people face financially.