Which of the following is the correct definition of a recession according to the NBER?

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BlackTom AI · Accepted Answer

When evaluating how the NBER defines a recession, the focus is on the core language used by the organization rather than popular shorthand rules.
Option 1: 'A recession involves a significant decline in the economic activity that is spread across the economy, which is represented by at least two quarters with negative growth.' While two consecutive quarters of negative GDP is a common rule-of-thumb people cite, the NBER does not define recession strictly by two quarterly declines. It uses a broader, activity-based assessment across various indicators, so this option is imprecise as a formal definition.
Option 2: 'A recession involves a significant decline in the economic activity that is spread across the economy, which is represented by at least one quarter with negative growth.' A single quarter of negative growth would not by itself constitute a recession in common policy definitions, and the NBER emphasizes a broader and more persistent deterioration across multiple indicators, making this option too narrow.
Option 3: 'A recession involves a significant decline in the economic activity that is spread across the economy and lasts more than a few months.' This phrasing aligns with the NBER’s emphasis on a broad-based decline that is observed across the economy and persists for a period longer than just a few months, capturing both breadth and duration without prescribing a strict numeric threshold.
Option 4: 'A recession involves a significant decline in the economic activity that is spread across the economy and lasts more than three months.' Although this mentions a duration beyond three months, the NBER does not fix a specific month-count threshold like this. The organization uses a more flexible, multi-indicator assessment of duration that is not tied to a fixed three-month cutoff, so this option is overly specific about the duration.
Overall, the most faithful alignment with the NBER’s recession definition centers on a broad-based decline across the economy with a duration longer than a brief period, rather than strict numeric criteria or a single-quarter benchmark.

Which of the following is the correct definition of a recession according to the NBER?

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