What is K-Shaped Recovery?

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About K-Shaped Recovery:

A K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes.
It leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
This type of recovery is called K-shaped because the paths of different parts of the economy,when charted together, may diverge, resembling the two arms of the Roman letter “K.”
The portion of the economy that recovers quickly is represented by the upper part of the K, while the lower part represents those groups that recover more slowly.
Reasons:

o K-shaped recoveries are generally caused by disparities that existed before the recession or by a recession that impacts populations and groups differently.

o It is possible due to the creative destruction of old industries due to the development of new industries and technologies during the recession.

o Government strategies like monetary and fiscal policies used to combat the recession can lead to a K-shaped recovery. Due to the nature of the economic policies, certain industries will benefit more than others.

o Due to the nature of the recession, it can exert a unique impact on different parts of the economy, especially when a recession is coupled with a negative real economic shock that results in a lasting negative impact on certain parts of the economy.

· Example: During the COVID-19 pandemic, North America saw a K-shaped recovery where the richer individuals and industries recovered faster compared to the poor.

Q1; What is an economic recession?

Recession is a slowdown or a massive contraction in economic activities. Such a slowdown in economic activities may last for some quarters thereby completely hampering the growth of an economy. In such a situation, economic indicators such as GDP, corporate profits, employment, etc., fall.

Source:FM Sitharaman rejects K-shaped recovery theory for India, asks doubters to explain