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If you’ve picked up a newspaper, turned on the radio or television, you’ve heard the R word: recession. But what does it mean and how does it affect the average person? Pete returns with what I hope is a bi-weekly blog entry. Today, it’s all about recession.
What is a recession?
A recession is when the gross domestic product of a country or region shrinks for two consecutive quarters. Since the idea of this is to put fancy economic terms into words normal people can understand, let me try that again…
The Gross Domestic Product (or GDP) of a country is the total value of all the goods and services produced within the country. If you add up the economic value of every single manufactured item and service sold (a ridiculously huge concept to think about) you get the country’s GDP. Canada’s GDP in 2006, for example, was $1.178 trillion — that’s the total value of every Tim Hortons coffee, dollar-store umbrella, sky-diving lesson and grocery bill sold during the whole year. In simple terms, if that number gets bigger, the economy is expanding. If that number gets smaller, the economy is contracting.
In finance, years are divided into quarters — periods of three months. So by a literal definition, a country is in recession when its economy shrinks for six consecutive months. Strictly speaking, that hasn’t happened yet in Canada or the U.S.A. But my hunch is we’re pretty damn close.
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