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Comparing Technical Definitions of Recession
Economists use at least two technical definitions for a recession. The first, from the NBER, defines it as a period of declining economic output. The second defines it as a period when output is below its 'normal' level, even if the economy is growing. This second definition presents a practical problem: defining 'normal output' is subjective and often controversial. For example, economic models like the WS-PS model can be used to define normal output as the level corresponding to the equilibrium employment where the Wage-Setting and Price-Setting curves intersect. This level is also often considered consistent with stable inflation.
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Comparing Technical Definitions of Recession
An economy reports that its total output of goods and services has been consistently falling for the past six months. Which of the following scenarios best describes the most likely concurrent impact on households and the labor market during this period?
Analyzing Economic Indicators
Connecting Economic Output and Employment
A country is considered to be in a recession if its total economic output falls for a single month.
Arrange the following economic events in the typical chronological order they would occur as an economy enters a period of sustained decline in activity.
Analyzing the Ripple Effects of an Economic Downturn
An economy experiences the following changes over nine months: total output decreases for three consecutive quarters, the national unemployment rate increases from 4% to 6%, and average household incomes decline. Which economic phase does this situation best represent?
Match each economic phase with its primary characteristic.
During a phase of the business cycle known as a ______, an economy typically experiences a sustained decline in total output, a drop in average incomes, and an increase in the unemployment rate.
An economic analyst is reviewing data for a country. Which of the following pieces of evidence, considered in isolation, provides the strongest indication that the country is experiencing the kind of sustained, broad-based decline in economic activity that characterizes a recession?
The Great Recession as a Consequence of the Financial Crisis
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National Bureau of Economic Research (NBER)
Defining Normal Output using the WS-PS Model
Economists sometimes use two different ways to identify a recession. One definition considers a recession to be a period of declining total economic output. A second definition considers a recession to be a period when total economic output is below its 'normal' or potential level, even if output is growing.
Consider an economy where total output is growing at a slow rate of 1% per year. However, most economic models suggest that its 'normal' level of output is much higher, and the current slow growth is not enough to reduce a high unemployment rate.
Based on this information, which statement accurately analyzes the situation?
Evaluating Competing Claims of a Recession
Economists use two primary technical definitions for a recession. The first defines a recession as a period of declining economic output. The second defines it as a period when output is below its 'normal' level, even if the economy is growing. Match each economic scenario with the description that best fits these definitions.
The Challenge of Defining a Recession
The Challenge of Defining a Recession