Thursday, August 2, 2012

What is Recession in the US Economy?

The Business Cycle Dating Committee of the National Bureau of Economic Research is the body that defines whether the US economy is in a recession or an expansion period. It uses real Gross Domestic Product (GDP) as the primary determinant of economic activity. According to the committee, a recession is:

"A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades."

Macro-economics grew out of business cycle theories, which tried to explain the recurrent fluctuations in economic activity. Here, economists have always debated the length of adjustment time and the economic impact of this adjustment. Many of them have proposed policies to reduce the fluctuations in real GDP due to the business cycle.


Enter the answer to the following questions in the boxes provided. Click on ‘submit’ to send your assignment for grading:
  •  What is a business cycle? 
  •  How many recessions have occurred since 1949? 
  •  Which recession was the most severe? Least severe?
  •  What was the longest interval between recessions?
  •  Has the severity of recessions decreased over the post-war period?
  • Have stabilization policies reduced the severity of business cycles?
Here are some web resources to help you with the assignment:
  •  Business Cycle Theories 
  •  Business Cycles during the post-World War II period 
  •  Potential GDP estimates
  •  Real GDP 
  •  Severity of Recessions
These resources contain data on real GDP and potential GDP, which will help you measure the performance of the economy, and indicate the severity of recessions. Some measures of severity might be the ratio of real to potential GDP, how much GDP fell, how long it fell, and how quickly it fell.

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