Recession is one word you might be tired of hearing -- especially if you have any money in the markets. Just the same, it's still good to know what's what where your wallet is concerned. So put your money where your mouth is, and take this quiz.
Let's refresh on the basics real fast. What's the common definition of a recession? A country is in a recession when the nation's economy:
suffers longer than one year
slows down for at least six months
ranks as less productive when compared to those of countries with similar expected gross domestic products
In an economy, can a person be both a producer and a consumer?
No -- only companies count as producers.
Yes -- people usually have roles as both producers and consumers in an economy.
Sort of -- if you're a factory worker or someone who actually creates something at work, then you are. If not, you aren't.
So if we're all producers and consumers -- who gets to set the prices?
Individual consumers play an indirect role in product pricing through their willingness to buy a product at a given price, but unless product pricing is your specific job responsibility, you don't have a direct say in the matter.
Product prices are determined based on the cost of manufacturing, without an eye to consumer behavior.
Companies conduct market studies of consumer behavior, but ultimately they price their products based on what government standards say they're worth.
What's the main factor that causes an economy to launch into a recession?
Producers amp up production too fast for people to consume their products.
Consumers start to worry about their bills, producers examine their tight bottom lines and everybody loses their confidence in the strength of the economy.
Both of those -- and then some.
Is there an economic pattern for recessions and subsequent periods of expansion?
No -- it's a completely unpredictable process.
Sort of -- but it's very difficult to determine any specific pattern until several years have passed.
Yes -- it's called a business cycle.
Who's the official word on recession in the United States?
The Board of Governors of the Federal Reserve System
The Business Cycle Dating Committee of the National Bureau of Economic Research
The Executive Directors of the World Bank
So how exactly does a country get out of a recession?
The government has to step in and save the day.
Businesses and investors need to get their acts together and quit messing around.
There is no sure-fire way to end a recession, but some actions on the part of the government can help.
What do fiscal policies include?
Fiscal policies deal with how the government spends and collects money.
Fiscal policies deal with how the central bank controls banks and interest rates.
Fiscal policies deal with how the treasury department mints money.
How about monetary policy -- what's going on there?
Monetary policies deal with how a nation's central bank -- like the U.S. Federal Reserve -- regulates money supply and interest rates.
Monetary policies deal with how the National Bureau of Economic Research guides the market.
Monetary policies deal with how investors, venture capitalists and others on Wall Street are allowed to buy and sell.
How does a recession end?
The economy naturally reaches a level of poor performance that it can't dip below, and from there it heads back up.
As soon as unemployment levels go back down and personal income levels go back up, a recession is over.
It's a gradual shift back in the right direction -- there are too many factors involved for any one quick fix.