ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A contraction generally occurs after the business cycle peaks, but before it becomes a trough. According to most economists, when a country’s real gross domestic product (GDP)-the most-watched indicator of economic activity-has declined for two or more consecutive quarters, then a recession has occurred.

Detailed explanation-2: -A contraction is a period when economic output declines. During this phase, the economy is producing fewer goods and services than it did before. When fewer goods and services are produced, fewer resources are used by firms-including labor.

Detailed explanation-3: -The most common definition of recession used in the media is a ‘technical recession’ in which there have been two consecutive quarters of negative growth in real GDP.

Detailed explanation-4: -A growth recession is a significant decline in activity relative to a country’s long-term economic potential.

Detailed explanation-5: -What Happens in a Recession? Economic output, employment, and consumer spending drop in a recession. Interest rates are also likely to decline as the central bank (such as the U.S. Federal Reserve Bank) cuts rates to support the economy.