Ace Your 2026 Personal Finance Module 3 Test – Master Your Money Moves!

A recession is characterized by a downturn in the economic cycle. This phase is typically marked by a decline in GDP (Gross Domestic Product), escalating unemployment rates, a decrease in consumer spending, and reduced investment by businesses. During a recession, economic activity contracts as businesses cut back on production and lay off workers, leading to a ripple effect that affects various sectors of the economy.

Recognizing this definition is essential, as it highlights the indicators of economic health and the challenges individuals and businesses may face during such times. Understanding a recession's characteristics enables more informed financial decision-making, whether it's planning budgets, managing investments, or seeking new opportunities during economic downturns.