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Recession

A recession is a period when the economy of a nation contracts. In other words, business activity shrinks instead of expanding.

In economics, a recession is generally a period of at least two consecutive quarters of negative GDP growth. They are usually preceded by a period of strong economic growth, over investment, and over consumption.

During a recession, the GDP of an economy falls, income levels of people go down, there is an increase in unemployment, along with a decrease in industrial production and consumption.

It's a financially difficult time for a most of the population.

Economic indicators that could point to a recession are closely watched by governments and economists. Yet it's not easy to predict a recession in advance.

This is due to the fact that large economies are also very complex. It's not always possible, even for economists, to identify the factors that will trigger a recession.

However, once a recession hits, it's obvious to everyone.

Recessions can be short (less than a year) or long (a few years). They can also be deep (huge declines in GDP) or shallow (small declines in GDP). Long recessions can even have periods in between with short-lived positive GDP growth.

It's important to understand that recessions are a normal part of economic activity. Every boom phase in an economy is followed by a bust.

Recessions cause inefficient businesses to shut down. Banks reduce their lending and tighten their credit policies. Companies reduce their fixed costs and become more efficient.

The pain caused by recessions is temporary as the economy bounces back. Businesses emerge stronger with low debt, strong balance sheets, and good cash flows.

However governments don't like recessions. This is due to the high unemployment that it causes. They tend to intervene with policies to stimulate the economy. These include low interest rates and higher spending on infrastructure and social projects.

In recent times governments and central banks have directly infused money into economies by sending cash to people's back accounts and buying corporate bonds.


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