how does recession occur? what is a business cycle? course hero

Remember, a recession is really a vicious cycle, with cascading declines in output, employment, income and sales, which feeds back into a further drop in output, spreading like wildfire from industry to industry, and region to region. This domino effect is key to the diffusion of recessionary weakness across the economy. Source: ECRI.

Full Answer

What is the cycle of recession?

The cycle is often referred to as a "boom or bust" cycle. A recession is typically defined as two or more successive quarters during which gross domestic product decreases. The nonpartisan, nonprofit organization dedicated to economic research in the United States is the National Bureau of Economic Research, or NBER.

How do you explain the business cycle in economics?

The business cycle in economics is explained by a rise in the gross domestic product, which depicts economic expansion or growth, and a decline in the gross domestic product, which depicts an economic contraction.

What would happen if the recession was only a brief one?

But let’s be clear. Just because the recession is relatively brief doesn't mean we’d be back to normal in short order. Many businesses would have closed for good and – with so many jobs disappearing – the unemployment rate would still stay painfully high for years.

When does a business cycle recovery really begin?

A business cycle recovery really begins when that recessionary vicious cycle flips and becomes a virtuous cycle, with rising output triggering job gains, rising incomes and increasing sales, which feeds back into a further rise in output. The recovery can persist only if it becomes self-feeding.

What is business cycle recovery?

A business cycle recovery really begins when that recessionary vicious cycle flips and becomes a virtuous cycle, with rising output triggering job gains, rising incomes and increasing sales, which feeds back into a further rise in output. The recovery can persist only if it becomes self-feeding.

What is the domino effect of recession?

This domino effect is key to the diffusion of recessionary weakness across the economy.

Can you drive a classic car again?

Now your classic car has an iced-up carburetor, some water in the fuel lines may have frozen solid, the engine oil has turned to molasses, and the old battery is practically dead, too weak to turn the engine over. It’s not that you’ll never drive that car again, but it won’t start right away.

Can you mandate a recession?

Sure, you can mandate a recession, but you can’t mandate a recovery. It’s not like flipping a switch. Imagine you drove home, switched off the engine and left your car in the driveway through a bitterly cold winter month, because you got really ill and couldn’t get out of the house.

Will the recession end in summer?

With that gradual reopening likely to begin soon, the recession could plausibly end by summertime, in which case it would have lasted just half a year or so, compared with a year and a half for the Great Recession. But let’s be clear.