GDP & Economic Cycles

Q: A recession is technically defined as:

Two consecutive quarters of negative GDP growth. The textbook definition is two consecutive quarters of declining real GDP — though the NBER uses broader criteria.

Q: Which sector typically LEADS the economy out of recession?

Financial and consumer cyclical sectors. Financials (easing credit) and consumer cyclicals (recovering spending) often lead early recovery phases.

GDP (Gross Domestic Product) measures total economic output. Business cycles move through expansion, peak, contraction, and trough. Recessions are 2+ consecutive quarters of negative GDP growth.

Quick quiz and answers

GDP is defined as:

Answer: Total market value of all final goods and services in an economy. GDP = Consumption + Investment + Government + Net Exports. It's the broadest measure of economic activity.

A recession is technically defined as:

Answer: Two consecutive quarters of negative GDP growth. The textbook definition is two consecutive quarters of declining real GDP — though the NBER uses broader criteria.

Which sector typically LEADS the economy out of recession?

Answer: Financial and consumer cyclical sectors. Financials (easing credit) and consumer cyclicals (recovering spending) often lead early recovery phases.

Stagflation describes:

Answer: High inflation combined with stagnant growth and high unemployment. Stagflation (stagnation + inflation) is the worst of both worlds — occurred notably in the 1970s oil crisis era.

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