A recession is a natural part of the U.S. business cycle, which consists of peak, trough,
recovery, and expansion. From the end of World War II through 1989, seven recessions occurred.
The business cycle usually lasts three to four years with the expansion phase longer than the period
of recession. On average, a recession lasts about a year. A recession is not an unexpected
occurrence; it is a natural response to periods of expansion (Dunnan & Pack, 1991).
During expansion, consumers and corporations borrow money. During this period, the
demand for credit causes interest rates to rise. Rising demand can lead to higher prices for goods
and services. Real estate prices escalate, and inflation may result. All of this leads to too much
debt--consumers no longer want to borrow. This causes a reduction in spending that leads to
business cutbacks, and a reversal of the expansion begins. When both consumer and business
spending and borrowing decline, production and income fall. If a contraction of the economy
begins, the economy recedes (Dunnan & Pack, 1991). If the contraction lasts long enough (falling
GNP for two consecutive quarters), it is labeled a recession.
The good news about recessions is that they eventually end. When consumer confidence
returns, the economy begins the cycle all over again.