Pearson Edexcel · A-Level · Economics B
Course version: 9EB0 · Version from Sept 2015
The economic cycle: c) Characteristics of a recession
A recession is defined as two consecutive quarters of negative economic growth, measured by a decline in real Gross Domestic Product (GDP).
Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .
- Point 3 of 3
- 4 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
A recession is defined as two consecutive quarters of negative economic growth, measured by a decline in real Gross Domestic Product (GDP). During a recession, an economy exhibits distinct characteristics. Unemployment typically rises as firms reduce their workforce in response to falling demand. Consumer confidence and spending decrease, leading to lower retail sales. Business investment falls due to pessimistic expectations. Inflationary pressures often ease, and the economy may experience deflation. Government borrowing usually increases because tax revenues fall, while expenditure on welfare benefits rises.
For example: In 2008, the UK experienced a sharp contraction in GDP, rising unemployment, and an increased budget deficit.
What earns the marks
- Identify two consecutive quarters of negative real GDP growth as the standard definition of a recession.
- Recognise that rising unemployment is a primary characteristic of a recession.
- Identify falling consumer and business confidence as key indicators of a recessionary period.
- Understand that government budget deficits tend to worsen during a recession due to lower tax receipts and higher welfare spending.
- Recognise that inflationary pressures typically subside during a recession due to a negative output gap.
Common mistakes and how to put them right
Confusing a fall in the rate of economic growth with a recession.
Put it right: A recession requires actual negative growth (a contraction in real GDP), not just slower positive growth.
Assuming inflation always becomes negative (deflation) during a recession.
Put it right: Inflation may just fall (disinflation) rather than becoming negative.
Believing that government spending automatically falls during a recession.
Put it right: Government spending often rises due to automatic stabilisers like unemployment benefits.
Exam tips
- When analysing data, look for two consecutive quarters of negative growth to confirm a recession, rather than just a single quarter of contraction.
- Remember that characteristics of a recession are interrelated; for example, falling consumer confidence directly leads to reduced business investment.
- Be prepared to interpret macroeconomic indicators, such as unemployment rates and inflation figures, to identify the current stage of the economic cycle.
Try the lesson
The start of the The economic cycle: c) Characteristics of a recession lesson, made from checked teaching notes for this specification point.
Have a go first
Which of the following is a defining characteristic of an economic recession?
Listen
A recession is defined as two consecutive quarters of negative economic growth, measured by a decline in real Gross Domestic Product (GDP). During a recession, an economy exhibits distinct characteristics. Unemployment typically rises as firms reduce their workforce in response to falling demand. Consumer confidence and spending decrease, leading to lower retail sales. Business investment falls due to pessimistic expectations. Inflationary pressures often ease, and the economy may experience deflation. Government borrowing usually increases because tax revenues fall, while expenditure on welfare benefits rises. For example, in 2008, the UK experienced a sharp contraction in GDP, rising unemployment, and an increased budget deficit. A strong answer earns marks for these points. Identify two consecutive quarters of negative real GDP growth as the standard definition of a recession. Recognise that rising unemployment is a primary characteristic of a recession. Identify falling consumer and business confidence as key indicators of a recessionary period. Understand that government budget deficits tend to worsen during a recession due to lower tax receipts and higher welfare spending. Exam tip: When analysing data, look for two consecutive quarters of negative growth to confirm a recession, rather than just a single quarter of contraction.
Key words
Say what each word means before you turn the card.
Recession
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Unemployment
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Inflationary pressures
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Government borrowing
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See every definition
- Recession
- Two consecutive quarters of negative economic growth, measured by a decline in real Gross Domestic Product (GDP).
- Unemployment
- Typically rises during a recession as firms reduce their workforce in response to falling demand.
- Inflationary pressures
- Often ease during a recession, and the economy may experience deflation.
- Government borrowing
- Usually increases during a recession because tax revenues fall, while expenditure on welfare benefits rises.
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