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Recession

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Definition of Recession

Recession Image 1

Recession

Loosely speaking, a period of less-than-normal economic growth. Technically, a downturn in economic activity in which real GDP falls in two consecutive quarters.



Related Terms:

Accomodating Policy

A monetary policy of matching wage and price increases with money supply increases so that the real money supply does not fall and push the economy into recession.


Business cycle

Repetitive cycles of economic expansion and recession.


Business Cycle

Fluctuations of GDP around its long-run trend, consisting of recession, trough, expansion, and peak.


Countercyclical

Falling during expansions and rising during recessions. A countercyclical policy stimulates during a recession and contracts during an expansion.


Cyclical Unemployment

Unemployment that increases when the economy enters a recession and decreases when the economy enters a boom.



Labor Hoarding

Not laying off redundant workers during a recession to ensure that skilled and experienced workers are available after the recession.


New Keynesians

Economists who, like Keynes, believe that for good reason wages and prices are sticky and so prolong recessions, suggesting a need for government policy.


Recession Image 2

Procyclical

Increasing during booms and decreasing during recessions.


Term repo

A repurchase agreement with a term of more than one day.
Term structure of interest rates
Relationship between interest rates on bonds of different maturities usually
depicted in the form of a graph often depicted as a yield curve. Harvey shows that inverted term structures
(long rates below short rates) have preceded every recession over the past 30 years.


Trough

The transition point between economic recession and recovery.


Yield curve

The graphical depiction of the relationship between the yield on bonds of the same credit quality
but different maturities. Related: Term structure of interest rates. Harvey (1991) finds that the inversions of
the yield curve (short-term rates greater than long term rates) have preceded the last five U.S. recessions. The
yield curve can accurately forecast the turning points of the business cycle.



 

 

 

 

 

 

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