In AP Macro, a recession is the contraction phase of the business cycle, when real GDP and employment fall, pushing actual output below potential output and creating a negative (recessionary) output gap that fiscal and monetary policy aim to close.
A recession is one of the two phases of the business cycle (the other is expansion). During a recession, aggregate output and employment fall because of changes in aggregate demand and/or aggregate supply (EK MEA-2.A.1, MEA-2.A.2). The popular shorthand is two consecutive quarters of negative real GDP growth, but for the AP exam what matters is the bigger picture. Real GDP is declining, unemployment is rising above the natural rate, and actual output drops below potential (full-employment) output.
On the business cycle graph, a recession is the downhill stretch that starts at a peak and ends at a trough (EK MEA-2.A.3). The gap between where the economy is and where it could be at full employment is the output gap (EK MEA-2.A.4). When that gap is negative, you have a recessionary gap, and that's where most AP Macro problems begin. A typical exam scenario, like a drop in consumer and business confidence, shifts aggregate demand left, lowering both real output and the price level.
Recession is the starting condition for a huge share of AP Macro questions. It's defined in Topic 2.7 Business Cycles under learning objectives 2.7.A and 2.7.B, where you have to identify the phases and turning points using graphs and data. But it really earns its keep in Unit 3, where Topic 3.8 (objectives 3.8.A through 3.8.D) has you fix a recession with expansionary fiscal policy, and Topic 3.9 (3.9.A and 3.9.B) explains how automatic stabilizers cushion the fall without anyone passing a new law. Topic 2.4 connects too, since recessions often come with deflation or disinflation, and you need real (inflation-adjusted) variables to even spot one. If you can't recognize a recession in a graph or a data table, you can't pick the right policy response, and policy responses are the bread and butter of the free-response section.
Keep studying AP Macroeconomics Unit 2
Recessionary Gap (Unit 3)
A recession is the movie; a recessionary gap is the snapshot. The recession is the phase of falling output, and the recessionary gap is the resulting situation where actual output sits below full-employment output on the AD-AS graph. On FRQs you'll usually be asked to draw the gap, not the cycle.
Expansionary Fiscal Policy (Unit 3)
Recession is the problem; expansionary fiscal policy is the prescription. The government increases spending or cuts taxes to shift AD right and restore full employment. Remember the spending multiplier is bigger than the tax multiplier, so a dollar of government spending closes more of the gap than a dollar of tax cuts.
Automatic Stabilizers (Unit 3)
These are the economy's shock absorbers during a recession. As GDP falls, tax revenues automatically drop and transfer payments like unemployment benefits automatically rise, propping up consumption without Congress doing anything. That's why automatic stabilizers dodge the policy lags that slow down discretionary fiscal policy.
Unemployment Rate (Unit 2)
Rising unemployment is the human face of a recession. In a recession, cyclical unemployment appears and the actual unemployment rate climbs above the natural rate. Exam questions often hand you unemployment data and expect you to infer which phase of the business cycle the economy is in.
Multiple-choice questions love giving you a bundle of indicators and asking you to name the phase. Rising unemployment, falling real GDP, and shrinking business investment all point to recession; the reverse points to expansion. You may also see cause-and-effect stems, like a sudden drop in consumer and business confidence (demand-side recession) or a negative supply shock (supply-side recession). On free-response questions, recession is usually the setup, not the question itself. The 2018 SAQ opened with "Assume the United States economy is in recession," the 2019 SAQ put Canada in a recessionary output gap, and the 2022 SAQ had a country operating below full employment. Your job from there is to draw a correctly labeled AD-AS graph showing output below full employment, then show how fiscal or monetary policy shifts AD back. The 2023 FRQ also tied recession-style conditions to unemployment calculations, so be ready to compute the unemployment rate and compare it to the natural rate.
A recession is a phase of the business cycle, the period when real GDP and employment are falling. A recessionary gap is a condition on the AD-AS graph, where current equilibrium output is below full-employment output. An economy can stop shrinking (recession over) but still sit in a recessionary gap if output hasn't climbed back to potential. When an FRQ says "draw the gap," it wants the AD-AS graph with equilibrium output to the left of the LRAS curve, not a business cycle wave.
A recession is the contraction phase of the business cycle, running from a peak down to a trough, with falling real GDP and rising unemployment.
During a recession, actual output falls below potential (full-employment) output, creating a negative output gap, also called a recessionary gap.
Recessions can be demand-side (falling consumer and business confidence shifts AD left) or supply-side (a negative supply shock shifts SRAS left).
The standard policy fix is expansionary fiscal policy, meaning more government spending or lower taxes, and the spending multiplier is larger than the tax multiplier.
Automatic stabilizers like income taxes and unemployment benefits soften recessions automatically, with no policy lag, unlike discretionary fiscal policy.
On FRQs, "the economy is in recession" is your cue to draw an AD-AS graph with equilibrium output left of full-employment output.
A recession is the contraction phase of the business cycle, when aggregate output and employment fall (EK MEA-2.A.1 and 2.A.2). It runs from a peak to a trough and pushes actual output below full-employment output.
Not on the AP exam. The two-quarters rule is a common real-world shorthand, but the CED defines recession by what's happening, which is falling real GDP and employment driven by shifts in AD and/or AS. Focus on the indicators and the graph, not a quarter count.
A recession is the period of falling output (a phase of the cycle), while a recessionary gap is the state where equilibrium output sits below potential output on the AD-AS graph. A recession creates a recessionary gap, but the gap can persist even after output stops falling.
Expansionary fiscal policy, meaning increased government spending or lower taxes/higher transfers, shifts aggregate demand right toward full employment (Topic 3.8). Spending works directly on AD and has a bigger multiplier than tax changes, which work indirectly through disposable income.
Unemployment rises above the natural rate as cyclical unemployment appears, and in a demand-side recession the price level falls or inflation slows (deflation or disinflation). A supply-side recession is the exception, since output falls while the price level rises (stagflation).