What does a drastic decrease in economic activity refer to?

A drastic decrease in economic activity is best characterized as a recession. A recession represents a significant decline in economic performance across the economy that lasts for an extended period, typically identified by a fall in GDP, employment, and investment spending, among other factors. During a recession, businesses may close or reduce operations, consumer confidence typically wanes, and unemployment rates can soar as a result of decreased demand for goods and services.

In contrast, stagnation suggests a prolonged period of little or no economic growth, but does not necessarily imply a dramatic decrease in activity. Growth indicates an increase in economic activity, which is opposite to the idea of a drastic reduction. Inflation refers to the general rise in prices and the decrease in purchasing power, which is a different phenomenon unrelated to a decline in economic activity. Thus, recession accurately describes the context of a significant economic downturn.