Business
What is a recession?
A recession is a significant, widespread decline in economic activity that lasts months or more. Businesses sell less, unemployment rises, and spending falls — often defined loosely as two straight quarters of shrinking economic output.
See it, don’t just read it.
Watch a 2-minute lesson with voice + animation that explains a recession.
Key things to understand
- 1Economic output (GDP) shrinks across the economy.
- 2Unemployment rises as businesses cut back.
- 3Consumer and business spending fall, reinforcing the slump.
- 4A common rule of thumb is two consecutive quarters of declining GDP.
- 5Governments and central banks try to soften it with policy.
Frequently asked questions
- What defines a recession?
- A broad, sustained drop in economic activity; a common shorthand is two consecutive quarters of falling GDP, though experts weigh several factors.
- Why do recessions cause unemployment?
- As demand falls, businesses earn less and cut costs, often by laying off workers, which further reduces spending.
- How do governments fight recessions?
- By cutting interest rates, increasing spending, or lowering taxes to encourage borrowing, investment, and consumer demand.