Glossary Recession

Recession

Definition: The recession is a situation in which the economy faces contraction in GDP, employment, consumer spending, corporate profits, individual income and private/public investments. In this situation the GDP data starts showing negative growth and the term recession is only considered when the downturn in economic activity lasts for six to nine months.

What does the government do in a recession?

The government needs to react quickly in times of recession. Most governments prefer a policy of stimulus packages, lowering taxes, increasing liquidity supply and lowering interest rates. By lowering interest rate, borrowers can borrow money cheaply and thus can spend accordingly, this boosts the consumer spending and economy. The government also eases norms for investments so that more investments can be attracted and thus more jobs can be created.

The best example of recession is the current U.S economic crisis or U.S recession. The government had acted swiftly and had announced enormous measures such as infusing liquidity, lowering lending rates and bailout packages. However, the effect of these measures can only be noticed after a certain period of time.

What is the difference between Slowdown and Recession?

Slowdown is very much different from recession. In the economic slowdown the GDP data shows positive growth which is lower than estimated numbers or in comparison with year-on-year basis. Whereas, in recession the GDP data shows negative growth on a year-on-year basis.