Business cycles are commonly associated with the ups and downs experienced in an economic situation. They include recession, recovery, boom and troughs. It is due to economic shocks that pushes the economy to either of these processes. It however depends with how well an economy and economic agents react to these external shocks that determine the extent to which the economy responds and adjusts back to stability. When an economy is experiencing recession, there are widespread unemployment, reduction in production levels, decrease or retarded economic growth, credit crunch and limited liquidity in an economy. However, recession can be manifested in different forms and shapes like V – shaped recession, L - shaped recession, U – shaped recession and W – shaped recession (Alberto, Nouriel and Gerald 23).
To have a clear understanding of these shapes, each letter represents economic behavior either in terms of growth or its absence. In a V- shaped recession, the economy falls to a very sharp recession which it recovers quickly. This represents a quick and a sharp fall and recovery of an economy. In late 2007 and early 2008, many economic agents especially the big bulls in USA thought that it would turn out to be a V – shaped recession which never came to be. It turned out to be a worse case than thought before. However, while the economy experiences a U – shaped recession, it takes a little longer time to recover close to 24 months unlike in V – shaped where economy undergoes sharp recession and quick recovery. Many scholars and economic agents believe that USA economy is undergoing a U – shaped recession which is long and prolonged. In an L – shaped recession, economy experiences a severe and a sharp recession which is followed by long period (years) of stagnant growth. When this scenario occurs, the economy takes in the neighborhood of 7 – 10 years to show any positive sign of growth and recovery. The USA economy is unlikely to experience L – shaped recession given the aggressive efforts the government is undertaking to combat the current economic situation (Dave 1).