What is a recession?: Feature Article
According to macroeconomics a recession is a decline in a country's real gross domestic product or negative real economic growth for two or more successive quarters of a year, so basically for half of the year or more. In fact a recession can actually involve simultaneous declines in coincident measures of overall economic activity including employment, investment, and corporate profits. But recessions are also associated with falling prices, which is also referred to as deflation. But a recession can also be associated with sharply rising prices, which is called inflation, as long as these sharply rising prices are in a process known as stagflation. If a recession goes on for a long period or is a particularly bad recession then the recession is no longer considered a recession, but it is now an economic depression.
But the United States has its own way of judging recessions. In fact in the U.S. the judgment of the business-cycle dating committee of the National Bureau of Economic Research (NBER) regarding the exact dating of recessions is generally accepted by everyone. The reason for this is that the NBER actually has a more general framework for judging recessions compared to other groups. According to the NBER a recession is a significant decline in economic activity spread across the economy that lasts longer than just a few months.
The effect of the recession can normally be visible in real GDP, real income, employment, industrial production, and wholesale retail sales. They also tend to think that a recession begins after the economy reaches a peak of activity and ends as the economy reaches its trough. And between the trough and the peak the economy is actually in expansion, which is the normal state of the economy. But the best thing about recessions is that in most cases they are usually short lived and they have actually been rather rare in the past few decades.
Predictors of a recession
Many people often wonder if there is any way that you can predict a recession. The truth of the matter is that there is no exact way to predict a recession, but there are things that you can watch for to see if a possible recession is going to occur. Basically what this boils down to is that there are no predictors that are totally reliable in telling you whether or not a recession is going to happen, but there are some things that are regarded by many economists as possible predictors to a recession. Here is a list of some of the predictors that economists use to help determine if a recession is going to happen or not:
The ten components of the index are:
History of recessions in the United States
If you pay attention to what the economists actually say you will discover the fact that since 1954 the United States has encountered 32 cycles of expansion and contractions. There has been an average of 17 months of contraction and 38 months of expansion during these cycles. But the good news is that they have actually been shorter and much less common in recent years. In fact since 1980 there have only been 4 recessions, which were:
Responding to a recession
There are numerous strategies that a country can use to respond to a recession, but what kind of strategies a country uses is going to depend on how that country's economy actually works and what they feel is best for their country. Here are some of the strategies that a country can use to respond to a recession:
Here are some examples of the rate cuts that the Federal Reserve has enacted during recessions and periods of low growth, these show the impact on short and long term interest rates:
While there is no widely accepted definition of a global recession, economists all over believe that they do exist. In fact according to the economists at the International Monetary Fund or the IMF they feel that global recessions actually occur over a cycle lasting between 8 and 10 years. And during the last three global recessions, global per capita output growth was zero or negative.
The economists at the IMF also say that a global recession would take a slowdown in global growth to three percent or less. If you were to follow this measure there are actually three periods since 1985 that qualify for a global recession. Those periods are: 1990 to 1993, 1998, and 2001 to 2002.
The IMF has actually recently just lowered its 2008 global growth projection from 4.9% to 4.1%. And because of this and other factors there has been a lot of speculation about a possible recession in the United States. If the recession does happen it is actually expected to have a global impact, according to numerous economists. The reason why this United States recession is going to have a global impact is because the United States represents 21% of the global economy so the impact of a United States recession can spread through the following: