Slideshows | September 6, 2012

Easier economics: Seven important terms to help explain a recession

It’s just more than five years since the start of the most recent global financial crisis – with several commentators pointing to August 2007 as the time it started – but how well do we understand important terms that help to explain a recession?

How does GDP play a part? What’s the difference between a recession and a depression? Our slideshow explains some important terms about recessions and includes a few that may surprise.

 

1

What’s GDP?

A basic definition of a technical recession is two quarters of negative gross domestic product (GDP). Generally speaking, if the GDP of a country is positive, the economy is growing. If it is negative, the economy is contracting. GDP is calculated by statisticians adding up private and government spending and other activity and can be compared over time.

2

It’s not a depression

In economic terms, a recession and a depression are both periods of slowdown. But a depression – such as the Great Depression of the 1930s – is considered to be more severe than a recession.

3

We need steady growth

If the economy is growing too quickly or too slowly, watch out. Experts say a sustainable rate of growth is important. And this sustainable rate can vary from country to country depending on, for example, the number of retirees compared with the number of workers.

4

Growing slowly

Sometimes an economy enters a growth recession. This contradictory-sounding term describes an economy that is expanding but not fast enough to keep unemployment from rising.

5

Alphabet soup

The recovery from a recession can vary from place to place and recession to recession. Names such as L-shape, U-shape and V-shape describe different ways economies can emerge from a period of weak economic activity. A V-shape recovery implies a sharp fall and quick recovery, a U-shape indicates a slower turnaround.

6

Dilemma ahead

Stagflation can arise during a recession when an economy shrinks or suffers very low growth while prices still continue to rise. It is particularly nasty as workers may face the threat of job loss as prices rise and inflation erodes their savings.

7

Do we adapt?

New words emerged in the last five years to describe a recession and the effects it has on people’s lives. Our favourites include the “recessionista” – or people who look stylish while on a budget. Not so nice is the “moneymoon”, or the time between buying an item and buyer’s remorse kicking in.

EconomicsRecession

eZonomics team
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