What is a Recovery Period?

James Doehring

In economics, a recovery period follows a recession or a depression. A recession is defined as a sustained drop of up to 10% in gross domestic product (GDP), a measure of a country’s total economic output. Drops of more than 10% are considered to be depressions. Once the GDP begins to rise again, the economy is said to be in a recovery period. The recovery period lasts until the GDP approaches pre-recession levels.

Most periods of economic recovery reduce unemployment levels.
Most periods of economic recovery reduce unemployment levels.

The gross domestic product of a country can be determined in one of three ways. One method is to add together the total outputs of every class of enterprise. Another way is to measure the sum of all citizens’ incomes. A final method of determining GDP involves measuring all expenditures of money in a country. Regardless of the method of calculation, the GDP is one measure that can be used to compare the total output of a country to that of previous years or other countries in the world.

A recession may lead to a halt in the construction of new residential buildings.
A recession may lead to a halt in the construction of new residential buildings.

Over time, a country’s GDP will generally rise as the economy develops and becomes more efficient. In most countries, there are instances when GDPs drop from year to year. The causes of these recessions are not well understood and are debated by economists. A recovery period follows a recession and lasts until the economy is considered to be at full potential again. The full potential of an economy is not an easily measurable quantity, but GDP levels from earlier years can be used as a benchmark for economic performance.

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A recovery period is typically marked by a rise in goods production, spending, and investing. Spending by consumers generally increases during a recovery period, because individuals have higher confidence in future economic prospects. The same holds true for businesses. Most businesses are able to pursue growth once a recovery period has begun. Both individuals and businesses tend to increase investments during recovery periods.

Most recovery periods also experience a decrease in unemployment, although jobless recoveries or recoveries with weak job growth are possible. The economist Arthur Okun observed that unemployment is roughly inversely correlated with GDP. Trends in job growth during recessions have been the subject of a great deal of controversy among politicians and economists. In most cases, however, a recovery period will involve an increase in the total number of jobs in a nation. This is the result of consumers spending more and businesses growing in size.

A recovery period can also refer to other areas, such as exercise. In that case, it is considered a time of rest between physical activities. This period allows for recovery of both the muscles and the major body systems, such as cardiovascular and respiratory. The length of the rest depends on how long and intensely the person exercised.

Jobs are typically scarce during a recession.
Jobs are typically scarce during a recession.

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