What happens in a recession
In: Economics
We measure the economy in GDP (gross domestic product). This is basically an estimate of all the transactions in the economy. How much money people and companies are spending in a three month period (a quarter).
Ideally, this figure will always increase, which means the economy is growing. If it shrinks for two quarters in a row, the economy is in a recession (aka shrinking).
When an economy goes into a recession, everyone tightens their belt. People save more and spend less, companies start to worry about their profits and make redundancies. This of course only makes the situation worse.
It’s honestly a miracle that we ever escape the feedback loop. But eventually, things bounce back. People get sick of holding onto their money and start spending, events such as the holidays trigger consumer spending increases, companies see opportunities and invest money. It only takes one quarter of growth to break the chain.
Although occasionally an economy can slip back into negative growth, called a double-dip recession.
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