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What is a recession?
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Quick answer
A recession is a significant, widespread decline in economic activity that lasts months or more. Businesses sell less, unemployment rises, and spending falls — often defined loosely as two straight quarters of shrinking economic output. Economic output (GDP) shrinks across the economy.
Key things to understand
- Economic output (GDP) shrinks across the economy.
- Unemployment rises as businesses cut back.
- Consumer and business spending fall, reinforcing the slump.
- A common rule of thumb is two consecutive quarters of declining GDP.
- Governments and central banks try to soften it with policy.
People also ask
What defines a recession?
A broad, sustained drop in economic activity; a common shorthand is two consecutive quarters of falling GDP, though experts weigh several factors.
Why do recessions cause unemployment?
As demand falls, businesses earn less and cut costs, often by laying off workers, which further reduces spending.
How do governments fight recessions?
By cutting interest rates, increasing spending, or lowering taxes to encourage borrowing, investment, and consumer demand.
What causes a recession?
Triggers include financial crises, sharp interest-rate rises, external shocks, or a broad loss of consumer and business confidence.
How is a recession different from a depression?
A depression is a far deeper, longer, and more severe downturn than a typical recession.