The term “recession” can be scary, and that’s likely because of how complicated a recession is. There’s a lot that goes into a recession, so let’s break it all down. The more knowledge you have, the less scary it can seem.
What is a Recession?
A recession is, in the most simple terms, a long-term, widespread slowdown of economic activity. One of the biggest signs is when the gross domestic product (GDP) has at least two straight quarters of negative growth. However, a recession is only official when a group of economists at the National Bureau of Economic Research’s Business Cycle Dating Committee say there is a recession. That group considers the GDP and several other factors to determine if there is a recession.
The Causes of Recession
There are many theories as to why an economy goes into a recession. In general, theories can be separated into economic, financial, and physiological reasons. Recessions usually last for about 17 months, though since 1980 they have been shorter.
Why it Matters
Usually, when a recession happens you can expect higher levels of unemployment and reduced spending. The best defense against a recession is to have a healthy emergency fund. If you have something to fall back on, losing employment will be less impactful.