Which description characterizes a recession?

Which description characterizes a recession?

• A. A decline in the rate of national economic activity, usually shown by a fall in real GDP for at least two consecutive quarters.
• B. A period of high inflation and rising interest rates.
• C. A period of sustained economic growth.
• D. A temporary increase in government spending.

Answer: (A)

A recession is a downturn in overall economic activity. A practical way to spot it is when real GDP—GDP adjusted for inflation—falls for two consecutive quarters, showing that the amount of goods and services the economy produces is shrinking over two successive three-month periods. This broader drop in output usually goes hand in hand with weaker hiring, lower consumer spending, and softer business investment, signaling a slowing economy. The other scenarios describe different situations. High inflation with rising interest rates points to an inflationary period with tight monetary policy, which isn’t the recession definition by itself. Sustained economic growth is the opposite of a recession, indicating the economy is expanding. A temporary increase in government spending is a policy action that could stimulate activity, not a description of a downturn.

A recession is a downturn in overall economic activity. A practical way to spot it is when real GDP—GDP adjusted for inflation—falls for two consecutive quarters, showing that the amount of goods and services the economy produces is shrinking over two successive three-month periods. This broader drop in output usually goes hand in hand with weaker hiring, lower consumer spending, and softer business investment, signaling a slowing economy.

The other scenarios describe different situations. High inflation with rising interest rates points to an inflationary period with tight monetary policy, which isn’t the recession definition by itself. Sustained economic growth is the opposite of a recession, indicating the economy is expanding. A temporary increase in government spending is a policy action that could stimulate activity, not a description of a downturn.