What Is A Recession?
Recessions are marked drops in economic activity that can endure for several months or even years. Recessions are regarded as an inevitable component of the economic cycle, or the predictable rhythm of expansion and contraction in a country's economy.
Welcome to ANB The internet show where we feed your curiosity with bite-sized pieces of knowledge. Today's topic: What is a Recession?
In a recession, businesses struggle to sell products, people lose their jobs, and the nation's overall economic output falls. Numerous variables will determine when the economy enters a recession officially.
In 1974, economist Julius Shiskin came up with a few rules of thumb to define a recession: The most popular was two consecutive quarters of declining gross domestic product or GDP. A healthy economy expands over time, so two quarters in a row of contracting output suggests there are serious underlying problems. This definition of a recession became a common standard over the years.
However, the National Bureau of Economic Research or NBER, which officially declares recessions, says that two consecutive quarters of decline in real GDP are not how it is defined anymore. The NBER defines a recession as a steep decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and sales.
There is more than one way for a recession to get started. These phenomena are some of the main drivers of a recession:
A sudden economic shock, which is a surprise problem that creates serious financial damage, like the coronavirus outbreak.
Excessive debt, which occurs when people or corporations take on too much debt, can make it so expensive for them to pay their debts that they are unable to do so. The economy then collapses due to increasing debt defaults and bankruptcies.
Asset bubbles, which is when irrational exuberance inflates stock market or real estate bubbles -- and when the bubbles pop, panic selling can crash the market, causing a recession.
Both inflation and deflation are too high. Weird, huh? But, when it comes to inflation and deflation, balance is crucial. Although neither is inherently harmful, allowing inflation or deflation to run amok over time creates issues that could trigger a recession.
Technological change. New innovations and inventions can increase productivity and help the economy over the long term, but there can often be short-term periods of adjustment to technological breakthroughs.
Even if you plan ahead to prepare for a recession, it can be a frightening experience. If there’s any silver lining, it’s that recessions do not last forever. Even the Great Depression eventually ended.
Narrated by: Kashieu
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