Understanding Economic Recession

Economists have since ages tried to define economic recession in the exact form; however the widely accepted technical definition of economic recession is related with the GDP growth in a country. When the GDP of a nation shows a decline in more than two quarters or more, an economic recession is said to have set in. It is usually headed by several quarters of slowing economic growth.

The onset of an economic recession can be identified by several factors. Experts in the field and economists say that the most determining factors of an economic recession are:

 Slow economic growth
 Fall in business growths
 Rise in unemployment
 Decline in housing prices
 Fewer jobs available

The official judge of the economic recession (the expansions, contractions, and business cycles) is NBER (National Bureau of Economic Research). It defines economic recession as the period when the economic activity falls, and it lasts for more than a few months, and its affect is seen on the GDP of the nation. By the time, the GDP of a country falls for more than two quarters, recession has made its hold over the entire economy.


What Leads To The Economic Recession?

What causes an economic recession is a much debated topic. However, the universal consensus about this is that an economic recession is caused due to the actions that are taken in order to control the supply of money in the economy. It is the responsibility of the Federal Reserve to maintaining a perfect balance between the factors such as interest rates, money supply, and inflation. When Federal Reserve fails to maintain this balance, the economy goes out of control causing an economic recession. This is precisely what has happened in the economic recession of 2007, where the Federal Reserve’s policy of infusing money to the market has maintained a lower rate of interest and high inflation.

Economic recession can also be caused by several other factors such as sudden rise in price of oil or a war. However, at these times, the economy slows down for a shorter period and generally tends to get recovered soon.

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