When an ordinary person hears the words recession and inflation, he or she realizes that the economy could be in for a bumpy ride. The first mentioning of these two words brings forth a sense of dread and fear for the future of one's personal financial security. The word recession is defined as the decline of a country's real gross domestic product for two or more successive quarters. Another way of defining this term is negative real economic growth in two or more consecutive quarters. The term inflation, in general, is defined as a rise in the prices of goods and services over time. In order to conclude which two terms is worse, we must analyze how a recession or inflation affects an economy.

When a recession occurs, several events usually transpire. First of all, many companies lay off substantial numbers of their workforce. During recessionary periods, companies have a more difficult time selling its products and services. Bankruptcies could occur. Moreover, consumers crack down on their spending habits. Luxury items are no longer seen as important to consumers. In addition, since many workers are losing their jobs, they must be more aware of their financial well-being. They cannot spend unwisely.

Another affect that a recession has on an economy are a rise in foreclosures. Many mortgage owners are unable to pay their monthly housing payment on time. A mass of them get into this predicament on account of losing their job or that their adjustable interest rate on their mortgage rises too high that they are unable to make the newly increased payment.

In addition, banks will be pickier and more cautious in lending money. Hence, someone who would like to open a mortgage or a car loan will have a difficult time obtaining that necessary loan. Therefore, fewer cars and fewer homes will be sold during a recession. Of course, the stock market would see a decline. Since many companies will have fewer sales and profits, it would not be a surprise to see the stock market and henceforth, one's own 401 K decline in value.

Similarly, inflation has several affects on an economy as well. The rise in prices makes everything much more expensive. A person's disposable income will not go as far. Consumers will cut back on their spending. Necessities such as gas for their cars and food at the grocery stores will rise. Of course, one factor leads to another. Truckers who ship the goods to stores will be paying higher gas prices to fill their truck's gas tank. The pain at the pump that they will feel will lead to higher food prices at the store.

One could say that a recession and inflation has a symbiotic relationship. But, a recession is worse for the future because its' affects are much more widespread throughout an economy. That is why the definition of a recession is about the state of the economy. And, of course, a recession could lead to a dreaded depression. People are more worried about a recession because of their financial well well-being. Nobody wants to lose their job or their home. A recession could quite possibly make it happen while people, for the most part, need to buckle down their spending habits during inflationary times.

Learn more about this author, George Marron.
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