A recession is a significant decline in economic activity that affects various sectors of the economy. It’s commonly identified by a decrease in real Gross Domestic Product (GDP) for two consecutive quarters.
However, official designations, such as those by the National Bureau of Economic Research (NBER) in the United States, consider a range of indicators, including real GDP, real income, employment, industrial production, and wholesale-retail sales, to determine the onset and end of a recession.
Recessions can arise from multiple factors, including financial crises, external trade shocks, adverse supply shocks, the bursting of economic bubbles, or large-scale disasters like pandemics. They often lead to widespread declines in spending, affecting consumer confidence and business investments.
Governments typically respond to recessions by implementing expansionary policies, such as increasing the money supply, decreasing interest rates, boosting government spending, or cutting taxes, to stimulate economic activity.
Understanding the causes and characteristics of recessions is crucial for policymakers and businesses to implement strategies that can mitigate their adverse effects and promote economic recovery.