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