The word “recession” has been around since at least Roman times. It describes a period when an economy slows down or goes into negative growth, which is why it’s used to describe a recession.

But what exactly is a recession? The short answer is that it’s a time when the economy slows down and there’s a decline in GDP. But if you want to know more about what causes a recession, then you need to read on.

The definition of recession

To start off with, let’s take a look at how economists define recessions. They say that a recession happens when there are two consecutive quarters of declining GDP. This means that there was either a contraction or an actual fall in GDP.

If GDP falls by 0.5% over two quarters, but then recovers, then this isn’t technically a recession. Instead, it would be called a technical recession.

In addition, we have to consider inflation rates too. The U.S. Federal Reserve defines recessions as periods where there is a drop in real GDP (that is, after adjusting for price changes) of 2%, 3%, or 4%.

This is important because some economies may experience high inflation during a recession, while others may not. In other words, it depends on the country.

Economists also refer to recessions as business cycles. And these are typically defined as lasting between 18 months and 24 months.

Three big causes of recession

So now we know what a recession is, and why they happen. But what exactly creates them? Well, first up, we have to understand that there are three main types of recession:

– technical – this occurs when there’s no real downturn in the economy, as shown above

– structural – this occurs when there’s a downturn, but the government steps in to help the affected businesses, such as banks and companies. This can include bailouts and stimulus packages.

– financial – when a bank runs out of money and needs to be bailed out.

All of these can occur together, so it’s impossible to say whether one type of recession is worse than the other. It all depends on the country.

Now let’s take a look at what each type of recession looks like.

Technical recessions usually last between 18 months and two years. A good example of a technical recession is the Great Depression of 1929.

Structural recessions tend to last longer, with an average of 27 months. Examples include the Great Depression and the Japanese recession of 1990/91.

Financial recessions are often caused by bank collapses, such as the ones seen in 2008. However, they’re rarely as bad as structural recessions because governments aren’t involved. That’s why you don’t see them very often, unlike structural recessions.

However, financial recessions do seem to affect the economy more than technical and structural recessions. So it’s difficult to say whether a recession is better or worse without knowing its cause.

Will we face another big recession in the future?

What we have learned so far from the past 20 years, it seems pretty likely that we’ll see another major recession on our horizon. In fact, many experts expect it to hit within the next year or so.

Of course, it’s difficult to predict the exact length of a recession, especially with the virus. There are so many factors that could cause it to last longer or shorter, which makes it hard to judge.

However, the most recent predictions show that we could be facing a recession within the next 12 months. And even though it is still early days, the effects already appear to be taking hold.

For example, the global stock market has taken a massive hit recently, with the Dow Jones Industrial Average dropping a lot this year, some analysts believe that it could take more than a decade for the markets to return to their previous levels.

And the world’s biggest oil exporter, Saudi Arabia, is also struggling right now.  Meanwhile, many countries have gone bankrupt due to the impact of the pandemic.

It’s clear that we’re all going through tough times right now. And it’s easy to blame the government, but the truth is that we’re all largely responsible for the state of the economy.

We’ve all made irresponsible decisions, from spending beyond our means to making rash purchases. And if we continue down this path, then we’ll find ourselves in trouble sooner rather than later.

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