Definition of recession

Government and the Macroeconomy – Economic Growth

Definition of a Recession

A recession is a period of economic decline that lasts for at least two consecutive quarters. During a recession, the economy produces less \$GDP\$, people lose jobs, and businesses earn lower profits. 📉

Think of the economy like a car engine. If the engine runs slower and slower, the car stops moving. That’s a recession.

  • Two or more consecutive quarters of negative growth in \$GDP\$.

  • Rising unemployment rates.

  • Declining consumer spending.

  • Reduced industrial production.

IndicatorWhat it showsDuring Recession
GDPTotal value of goods & services.Negative growth.
Unemployment RatePercentage of jobless people.Rises.
Consumer ConfidenceHow optimistic people feel.Falls.

Imagine a school where the number of students (GDP) drops each year, teachers (businesses) get fewer students, and many students leave school (unemployment). That’s like a recession.

  1. A recession lasts at least two quarters.

  2. It involves negative GDP growth and higher unemployment.

  3. It is a normal part of the business cycle.

  4. Governments often intervene with stimulus measures.