Typically, a recession is a significant decline in economic activity for two consecutive quarters. The decline is normally seen in the real Gross Domestic Product (GDP) , real income, employment, industrial production, and wholesale-retail sales. If a recession occurs over a long period of time, it may develop into a depression .
Recessions are the result of falling demand and may be associated with falling prices (deflation), sharply rising prices (inflation), or a combination of rising prices and slow economic growth. Such a slow-down can be characterized by a number of different trends, including:
- People buying less
- Decreases in factory production
- Growing unemployment
- Slumps in personal income
- An unhealthy stock market
The Federal Reserve (the Fed) is the central bank of the U.S. and usually responds to recessions by lowering interest rates. Acting through banks and government securities dealers, the Fed buys and sells government securities on the open market to influence short-term interest rates and the growth of money and credit.
Deflation
Deflation is the fall in the general price level of goods and services, or a reduction of credit and available money. A decrease in government, personal or investment spending can also cause deflation. One of the side effects of deflation is increased unemployment , because there is a lower level of demand in the economy.
Inflation
Inflation (price inflation) is a rise in the general price level of goods and services over time. Please visit the Overview of Statistics on Inflation and Prices from the Bureau of Labor Statistics (BLS) for additional inflation information.
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