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  • A state of the economy that occurs when there is a slowdown or downturn of economic activity for two consecutive quarters or more. The slowdown is a manifestation of increased unemployment above its natural (long-run) rate and plummeting real output (GDP).

    Economists generally disagree on the reasons for a recession because it may be caused by a reduction in aggregate demand (consumption), a reduction in aggre gate supply (production), or exogenous shocks. In trying to explain a recession, the two major schools of thought can broadly be classified in terms of demand and supply. Others believe that the economy can correct itself through built-in stabilizers such as unemployment compensation and tax receipts.

    The fundamental challenge confronting policymakers when an economy is in a recessionary state is to ...

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