Recession

Recession, in macroeconomics, is a period of temporary economic decline during which trade and industrial activity slow down, generally identified by a fall in GDP in two successive quarters.

How It Works

A recession occurs when the economy experiences a decline in economic activity, typically measured by a decrease in GDP. This decrease is usually accompanied by other indicators such as a rise in unemployment, a decrease in consumer spending, and a decline in business investment. The National Bureau of Economic Research (NBER), the official arbiter of U.S. recessions, defines a recession as a significant decline in economic activity that is spread across the economy and lasts more than a few months. The most recent recession in the U.S., for instance, lasted from December 2007 to June 2009.

Why It Matters

Recessions matter because they have significant impacts on individuals, businesses, and governments. During a recession, unemployment typically rises, which can lead to increased poverty and income inequality. Businesses may struggle to stay afloat, leading to closures and job losses. Governments often see a decrease in tax revenue, which can limit their ability to provide services and support those in need. Additionally, recessions can have long-lasting effects, such as reduced productivity and lower potential output for the economy. Therefore, understanding and managing recessions is a key goal of economic policy.