CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY

Recently in Nigeria, the CBN and the Finance Minister have told Nigerians that the nation is in an economic recession, it is very important that the impact of this recession on the Nigerian populace is well understood. The causes can be well understood if the definition of an economic recession is revisited. An Economic Recession  is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real Gross Domestic Products, real income, employment, industrial production, and wholesale-retail sales.(US National Bureau of Economic Research).

Generally in economics, a recession is a negative economic growth for two consecutive quarters. It is also a business cycle contraction which results in a general slowdown in economic activity (Merriam-Webster Online Dictionary, 2008). Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise.

Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.