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Resession - Stock Trading Glossary

ResessionA recession is a significant and widespread decline in economic activity that lasts for an extended period of time, typically several months or more. It is usually characterized by a contraction in Gross Domestic Product (GDP), employment, and other economic indicators.

Recessions can be caused by a variety of factors, including fluctuations in the business cycle, changes in monetary or fiscal policy, external shocks such as natural disasters or geopolitical events, and other economic imbalances. Whatever the cause, the effects of a recession can be severe, and they can have a profound impact on individuals, businesses, and governments.

During a recession, consumer spending tends to decline as people become more cautious with their money, and businesses may reduce their investments or cut back on production. This can lead to job losses and higher unemployment rates, as companies reduce their workforce or shut down altogether. Addittionally, government revenue may decrease as tax receipts decline, leading to budget deficits and a potential increase in public debt.

The National Bureau of Economic Research (NBER), a non-profit organization that serves as the official arbiter of U.S. economic cycles, uses a variety of economic indicators to determine whether a recession has occurred. These indicators include GDP, employment levels, industrial production, and wholesale-retail sales. If these indicators show a significant and widespread decline in economic activity lasting for more than a few months, the NBER may declare that a recession has occurred.

Governments and central banks often respond to recessions with a variety of policy measures designed to stimulate economic growth and stabilize the economy. These measures can include fiscal policies such as government spending increases or tax cuts, as well as monetary policies such as interest rate reductions or quantitative easing. Despite the negative effects of recessions, they can also be seen as an opportunity for businesses and governments to implement structural reforms and make necessary changes to promote long-term economic growth. In some cases, recessions can lead to technological innovation, increased efficiency, and new business opportunities.

In summary, a recession is a significant and widespread decline in economic activity that lasts for an extended period of time, typically several months or more. They can be caused by a variety of factors and can have severe impacts on individuals, businesses, and governments. However, they can also provide opportunities for reform and long-term growth.

There have been many notable recessions throughout history, affecting economies around the world. Some examples of major recessions include:

  • The Great Depression: This was a severe worldwide economic depression that lasted from 1929 to 1939. It began in the United States with a stock market crash in October 1929 and quickly spread to other countries. It was characterized by high unemployment, poverty, and a severe contraction in economic activity.
  • The 1973 Oil Crisis: This was a recession triggered by the oil embargo imposed by OPEC in 1973. It led to an increase in oil prices and inflation, as well as a decline in economic growth in many countries.
  • The Dot-Com Bubble: This was a recession that occurred in the early 2000s, triggered by the collapse of the dot-com bubble. It was characterized by a decline in the stock market and a slowdown in economic growth, particularly in the technology sector.
  • The Great Recession: This was a global economic downturn that began in 2008 and lasted until 2009. It was caused by the subprime mortgage crisis in the United States, which led to a collapse of the housing market and widespread financial instability. It resulted in a sharp decline in economic activity, rising unemployment, and a significant slowdown in global trade.
  • COVID-19 Pandemic Recession: This was a recession that began in early 2020 as a result of the COVID-19 pandemic. Governments around the world imposed lockdowns and other measures to slow the spread of the virus, resulting in a significant decline in economic activity. The recession has been characterized by rising unemployment, bankruptcies, and a significant decline in global trade.

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