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Recession, technically, 2 or more successive quarters of declines in real Gross Domestic Product, calculated by adjusting for price changes. For example, if GDP increases by 12% and the price level by 8%, real GDP has risen by 4%. Recessions are caused by a decline in one or more of the components of aggregate demand for goods and services - consumer expenditure, business-investment expenditure, government expenditure or exports. Investment expenditure is the most volatile component. In a recession the demand for the products of most businesses declines, causing a fall in sales, production and employment. Recessions can usually be halted by expansionary monetary policy, which involves increasing the money supply, thus reducing interest rates and making credit easier to obtain, or by expansionary FISCAL POLICY, which involves increased government expenditure. One reason for the reduced severity of recessions after WWII is the effect of built-in stabilizers (mechanisms that automatically increase government expenditure in downturns and reduce it in upturns), eg, unemployment insurance. A depression is a severe recession.
The last two recessions in Canada occurred in 1982 and 1990. The 1982 recession was particularly severe as GDP dropped by 6.7% over a period of 18 months. The most recent Canadian recession began in the second quarter of 1990 and over the next 12 months GDP fell by 3.2%. Some factors contributing to the economic slowdown leading to the 1990 recession included a slowdown in the US economy, the restrictive monetary policy of the BANK OF CANADA which was designed to fight INFLATION, and finally, the constraints on fiscal policy arising from the burden of interest payments on the federal debt. The recovery from this recession was unusually slow; there was almost no growth between mid-1991 and mid-1992. This slow recovery was export driven.
Author
W.C. RIDDELL
Links to Other Sites
Glossary: Financial Industry
This glossary provides definitions for terms widely used in the financial industry. From the Financial Consumer Agency of Canada.
Economic and Fiscal Information
This site offers information about the economy and Canadian government finances, including the economies of the regions and the financial situations of provinces. From the Government of Canada.
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