What is a recession?

The most typical definition for a recession, found in most economics textbooks, is that a recession exists whenever a country’s economy sees its real gross domestic product (GDP) decline for two or more consecutive quarters (6 months or more in a row).  However, this is not the only definition for a recession.

In general, a recession is a time when a country’s economy is declining.  The country generally starts to produce fewer goods and services.  This is why GDP goes down.  Because the country is producing fewer things, there is more unemployment.  People get laid off because they are not needed to make goods and services. 

Recessions are typically seen as a natural part of the business cycle in a capitalist economy.  Economies never simply grow uninterruptedly.  Instead, they rise and fall.  A recession occurs when the economy is falling.

When a very bad recession occurs, it is often referred to as a depression.  There is no objective criterion to differentiate between a recession and a depression.  Instead, we generally just say that a depression is a really bad recession, but “really bad” is not something that has an exact definition.

So, a recession is really just a time when the economy is in decline, but there are different ways to define exactly when this is happening.  Follow the link below for more.