A recession has traditionally been defined as a period during which:

• A. the inflation rate rises above 5%
• B. real GDP declines for two consecutive quarters
• C. government spending increases significantly
• D. unemployment falls below the natural rate

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the definition of a recession in macroeconomics. A recession is commonly defined as a significant decline in economic activity spread across the economy, lasting more than a few months.
2. Step 2: Recognize the standard quantitative indicator used to identify a recession, which is a decline in real GDP for two consecutive quarters. Real GDP measures the value of all goods and services produced, adjusted for inflation.
3. Step 3: Note that other options such as inflation rising above 5%, government spending increasing significantly, or unemployment falling below the natural rate do not define a recession. In fact, unemployment typically rises during a recession.
4. Step 4: Summarize that the key criterion for a recession is a decline in real GDP for two consecutive quarters, which reflects a contraction in economic output.
5. Step 5: Conclude that when analyzing economic data, focus on real GDP trends over consecutive quarters to determine if the economy is in a recession.