Recession – definition

A recession is a measured decline in real national income sustained for at least two consecutive quarters, where GDP is the commonest measure of national income.

recession diagram

A recession will cause several economic problems, including falling living standards, rising unemployment and price deflation, and for this reason macro-economic policy will target the avoidance of a recession as its main objective.

Even though targeting inflation is commonly thought of the primary function of monetary policy, a target rate of 2% will encourage some growth and ensure that recession, deflation and unemployment are avoided.