Definition of relative age dating
Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise.
In the United Kingdom, it is defined as a negative economic growth for two consecutive quarters.
Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.
In the United States, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is generally seen as the authority for dating US recessions.
Government stimulus spending and mercantilist policies to stimulate exports and reduce imports are other techniques to stimulate demand.
Japanese firms overall became net savers after 1998, as opposed to borrowers. However, Krugman argued that monetary policy could also affect savings behavior, as inflation or credible promises of future inflation (generating negative real interest rates) would encourage less savings.
A liquidity trap is a Keynesian theory that a situation can develop in which interest rates reach near zero (zero interest-rate policy) yet do not effectively stimulate the economy.
In theory, near-zero interest rates should encourage firms and consumers to borrow and spend.
A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic depression, although some argue that their causes and cures can be different. In the US, V-shaped, or short-and-sharp contractions followed by rapid and sustained recovery, occurred in 19–91; U-shaped (prolonged slump) in 1974–75, and W-shaped, or double-dip recessions in 19–82.
Japan’s 1993–94 recession was U-shaped and its 8-out-of-9 quarters of contraction in 1997–99 can be described as L-shaped.