What characterizes a recession?

A recession is characterized by a significant decline in economic activity across the economy, lasting more than a few months. This is often reflected in multiple economic indicators, including rising unemployment and increased business failures. During a recession, consumer demand typically decreases, leading to lower sales for businesses and, as a result, many may struggle financially or go bankrupt. Consequently, businesses may be forced to lay off employees, contributing to higher unemployment rates. These conditions create a cycle that can exacerbate the recession as decreased consumer spending further impacts businesses and the economy as a whole.

Other characteristics that suggest negative economic health, such as high inflation or increased interest rates, may complicate the economic landscape but are not definitive indicators of a recession on their own. In contrast, an increase in economic growth or a stable economy with low prices would suggest a thriving economy, not a recession. Thus, the correct choice highlights the essential traits of economic downturns.