During a recession, the economy experiences a significant decline in economic activity, which can last for more than a few months and affect the broader economy, not just a particular sector. Here are some of the things that happen during a recession:
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Decreased economic output: The output of an economy usually increases over time, but during a recession, output growth can be weak or negative, leading to a decline in aggregate demand.
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Lower consumer demand: During a recession, people tend to spend less money, which can lead to decreased demand for goods and services.
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High unemployment: Companies may lay off workers and slow hiring, leading to an increase in the unemployment rate.
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Reduced job security: Workers may have less job security, and those considering quitting their jobs should prepare for a longer job search if they decide to find a new one later.
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Increased financial risks: Financial risks increase during a recession, including the risk of default, business failure, and bankruptcy. It is best to avoid increasing, and if possible, reduce exposure to these financial risks.
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Higher prices: Everything from groceries to shoes is often more expensive during a recession, and workers may have less job security.
Recessions inflict great hardship on households and businesses, and they can have long-lasting effects on both society and the economy. Policymakers try to reduce the frequency and severity of recessions, and monetary policy is one of the main tools used to do this.
