IN THE FIRST QUARTER OF THE YEAR,REAL GDP WAS $400 BILLION;IN THE SECOND QUARTER, IT WAS $398 BILLION; IN THE THIRD QUARTER,IT WAS $399 BILLION;AND
IN THE FOURTH QUARTER,IT WAS $395 BILLION.HAS THERE BEEN A RECESSION? EXPLAIN YOUR ANSWER.
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No, there has not been a recession, even though the Real GDP at the end of the year is lower than the Real GDP at the beginning of the year. The reason for this has to do with the technical meaning of the term "recession."
For a recession to occur, there has to be a drop in Real GDP, but that drop has to happen in two consecutive quarters.
In the example you give, Real GDP dropped in the second quarter, but then it went up in the third before dropping again in the fourth. So, technically, this is not a recession.
A recession refers to a period of significant decline in level of economic activity marked by significant decline in unemployment and GDP lasting for at least 6 months to one year.
Based on the information given in the question it cannot be concluded that the situation described represents a period of recession. To begin with the lowest reported quarterly GDP ($395 billion) just 1.25 percent of the Quarterly GDP. This difference is not substantial. Variations of this order could also be due to seasonal fluctuations during a year. Further no two consecutive quarters show reduction in GDP. The GDP falls in the second quarter, but rises in third quarter before falling again in fourth quarter. Therefor based on the data available, I would not describe the situation as recession.
However, I must caution that there are no clearly defined quantitative measures for determining presence of recession. Personal assessment of the factors that have affected the performance reported, as well as the likely future prospect of the economy will influence assessment by individual experts.
The definition of recession is not like a formula. It is slowing down of economic activities resulting in slowing down of GDP persisting for a period of at least two successive quarters.
In the present case the GDP declines from $400 to $398 and the decline is by $2, or 0.5%, which is too small decline.
Comparing the second and 3rd quarter the GDP improves and does not decline.
Comparing the last two quarters, the decline is by $3 and 1.0025%.
Therefore between the first to 4th quarters, there is no recession. But we cannot say about period of the isolated 1st quarter in relation to its previous quarter as we do not know the GDP of the quarter prior to the first quarter.
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