Recession Definition. A Recession is a material slowdown in economic activity over a sustained period of time. Business cycles tend to expand and contract, the latter condition being a recessionary trend. The National Bureau of Economic Research officially defines a recession as two consecutive quarters of falling or negative GDP. During recessions, many macroeconomic indicators tend to move in similar directions. As noted above, Gross Domestic Product (GDP) falls as production declines, as do employment, investment spending, capacity utilization, household incomes, business profits and inflation. On the other hand, both bankruptcies and unemployment rates rise during the business contraction. A widespread drop in spending generally accompanies a recession. Governments typically adjust fiscal and monetary policies to dampen the effects of a recession by attempting to stimulate the economy and offset the lack of spending by businesses and consumers. These policy adjustments are termed expansionary and may include increasing money supply, increasing government spending and decreasing taxation.
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