The business cycle is made up of two distinct, yet interconnected, phases – recession and expansion. Though the two terms may be used interchangeably, they mean very different things and have different effects on the economy. In this article, we will explore the differences between recession and expansion, taking an in-depth look at what each term means and how it affects the economy.

What is Recession?

Recession is defined as a period of economic decline, marked by a fall in the gross domestic product (GDP) for two consecutive quarters. It is typically accompanied by a decrease in employment, a rise in unemployment, and a decrease in consumer spending. During a recession, businesses may experience lower sales, a decrease in profits, and a reduction in investments.

What is Expansion?

Expansion is the opposite of recession and is characterized by an increase in economic activity and a rise in GDP for two consecutive quarters. Expansion is usually accompanied by a rise in employment, a decrease in unemployment, and an increase in consumer spending. During an expansion, businesses may experience higher sales, increased profits, and an increase in investments.