A recession is an economic downturn that occurs when a country's Gross Domestic Product (GDP) experiences contraction. This leads to a decline in national output, income, and employment rates. Recession is a normal part of the business cycle, which consists of four phases: expansion, peak, contraction, and trough.
A recession can be caused by various factors such as:
The National Bureau of Economic Research (NBER) is responsible for determining whether the economy has officially entered a recession. The primary indicators of recession include falling GDP growth rate for two consecutive quarters, rising unemployment rates, and declining consumer confidence.
During a recession, many people lose their jobs or face pay cuts. As a result, they reduce their spending on goods and services. This leads to decreased sales for businesses, ultimately causing them to lay off more workers or even go bankrupt. The government may try to increase spending or lower taxes to stimulate the economy via stimulus packages.
A recession typically goes through different stages which include:
The duration of recessions varies depending on factors such as the severity of its causes and potential government interventions. On average, recessions last between 6 to 18 months.
Preparing for an impending recession requires individuals to:
