Economic Characteristics

A general slowdown in economic activity, a downturn in the business cycle, a reduction

in the amount of goods and services produced and soldthese are all characteristics of a
recession. The Great Recession began in December 2007 and ended in June 2009, which makes
it the longest recession since World War II. Beyond its duration, the Great Recession was notably
a severe economic condition because of the significant decline in economic activities spread
across the economy.
Economic conditions can be considered the economic characteristics that describe the
state of an economy. There are a large number of variables or characteristics used to gauge the
health of an economy, with four of them usually referred to as the key macroeconomic variables:
the gross domestic product, the unemployment rate, the inflation rate, and the interest rate. These
variables help us understand the behavior of the economy and play a vital role in determining the
success or failure of a business.

Gross Domestic Product

According to the Bureau of Economic Analysis, Real gross domestic product -- the
output of goods and services produced by labor and property located in the United States -increased at an annual rate of 5.6 percent in the fourth quarter of 2009, (that is, from the third
quarter to the fourth quarter), according to the "third" estimate released by the Bureau of
Economic Analysis. In the third quarter, real GDP increased 2.2 percent.
GDP measures the monetary value of final goods and services produced in a country in a
given period of time. It counts all of the output generated within the borders of a country. GDP is
important because it gives information about the size of the economy and how an economy is
performing. The growth rate of real GDP is often used as an indicator of the general health of the
economy. In broad terms, an increase in real GDP is interpreted as a sign that the economy is
doing well.
Unemployment Rate
The level of employment is the next crucial macroeconomic variable. The employment
level is often quoted in terms of the unemployment rate, defined as the fraction of labor force not
working but actively seeking employment. One of the most widely recognized indicators of a
recession is higher unemployment rates. In December 2007, the national unemployment rate was
5.0 percent, and it had been at or below that rate for the previous 30 months. At the end of the
recession, in June 2009, it was 9.5 percent. In the months after the recession, the unemployment
rate peaked at 10.0 percent (in October 2009). Before this, the most recent months with

unemployment rates over 10.0 percent were September 1982 through June 1983, during which
time the unemployment rate peaked at 10.8 percent.
Inflation Rate
The third key macroeconomic variable is inflation. The inflation rate is defined as the rate
of change in the price level. Most economies face positive rates of inflation year after year. The
price level, in turn, is measured by a price index, which measures the level of prices of goods and
services at a point in time. The number of items included in a price index varies depending on the
objective of the index. Government agencies periodically report three kinds of price indexes and
these are consumer price index (CPI), producer price index (PPI) and implicit GDP price
deflator. In 2009 the average inflation rate is -0.4. A negative inflation or deflation happens when
prices fall because the supply of goods is higher than the demand for those goods. This is usually
because of a reduction in money, credit or consumer spending.