Economics
Recessions
Recessions are periods of economic decline characterized by a decrease in economic activity, including a drop in GDP, employment, and consumer spending. Recessions are typically marked by a contraction in the business cycle and can lead to reduced investment, increased unemployment, and lower consumer confidence. Policymakers often implement measures to stimulate the economy during recessions.
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8 Key excerpts on "Recessions"
eBook - PDF- Robert E. Lawless(Author)
- 2010(Publication Date)
- Greenwood(Publisher)
When high inflation persists, interest rates on credit cards, automobile, home and business loans, and other borrowing sources rise. Higher interest rates make it more expensive for consumers and businesses to borrow money, which leads to lower spending. Lower spending leads to greater unemployment, lower GDP, and lower economic growth. If the economy grows too slowly, stagnates, or experiences negative growth, a country runs the risk of moving into a recession or even a depression. The term economic recession can be measured in different ways. A common defini- tion of a recession is two or more quarters of negative growth in GDP. This means that instead of growing for a six-month or longer period, the economy y GUESS WHAT? Most U.S. economists agree that GDP growth of 3 to 5 percent per year is favorable for the overall economy. y GUESS WHAT? The U.S. economy is the largest in the world. For the year 2007, its gross domestic product was estimated to be $13.8 trillion. Economics 171 contracts. During periods of recession, people spend less and businesses make lower profits. This causes companies to reduce their workforces, and unemployment rises. As unemployment increases, people tend to spend even less, which places further strain on households and businesses. A depression is much more severe than a recession. There is no formal defi nition for an economic depression, but a depression includes a longer period of declining economic performance. During a depression, unem- ployment reaches very high levels, and many companies are forced to fi le bankruptcy. The last depression in the United States began in 1929 and lasted through the early 1930s. Other U.S. depressions occurred in the 1870s and 1890s. y GUESS WHAT? During the economic depression of the 1930s, one out of every four persons wanting to work could not find a job. In addition, the stock market declined by almost 90 percent from peak to bottom.
- Andrés Solimano(Author)
- 2020(Publication Date)
- Cambridge University Press(Publisher)
10 2 Recession and Depression An Overview of Theories and Empirics 2.1 Introduction Before continuing with the analysis of actual experiences of economic slumps (Recessions and depressions), this chapter reviews main conceptual approaches to understand slumps and the interactions between policies, shocks, and recessionary cycles. 2.2 Business Cycles, Recessions, Depressions, and Recoveries The amplitude and duration of a whole business cycle can be measured from peak to peak or from trough to trough. In addition, a distinction is made between the phase of expansion of a cycle – running from trough to peak – and the phase of contraction (recession) that is measured from peak to trough (see Figure 2.1 ). A trend line often represents the medium-run evolution of output, around which we observe short-term fluctuations. Another way to see a business cycle is as a temporary deviation in the level of output (total Gross Domestic Product (GDP), per capita GDP, industrial production) from the trend (Figure 2.2a) or a more permanent reduction in the level of output (Figure 2.2b ). Empirically, using quarterly data, a common definition of a recession is a sequence of negative growth lasting for at least two consecutive quarters. 1 Some add to this definition an unemployment rate approach- ing 10 percent. If we use annual data, we may define a recession as at least a year of negative growth. Economists tend to distinguish between mild to moderate Recessions and depressions, with the latter describing deep 1 See the methodology of the National Bureau of Economic Research of the United States. 11 2.2 Business Cycles, Recessions, Depressions, and Recoveries and protracted contractions in economic activity. Some may apply the term “depression” to permanent decelerations in output growth relative to some historical averages.
- International Monetary Fund. Research Dept.(Author)
- 2002(Publication Date)
- INTERNATIONAL MONETARY FUND(Publisher)
Diebold and Rudebusch, 1999) . However, recent advances in econometrics and information technology have greatly facilitated the use of nonlinear models in empirical economic research.6 See, for example, Boone and others (2002) .7 In some macroeconomic models, the same shock may affect both long-run growth and business cycle fluctuations. See King and others (1991) , among others.8 Classical Recessions typically overlap with growth Recessions, while the converse is not true.9 Looking forward, as the working age population in many industrial countries starts to decline, level Recessions will no longer be so severe in per capita terms.For the analysis, a recession is defined as one or more consecutive years of negative real GDP growth, while an expansion consists of a year or more of positive growth. The resulting business cycle turning points broadly match the dates in the National Bureau of Economic Research (NBER) chronologies for the United States, the United Kingdom, France, and Germany (available in Glasner, 1997 ). The differences reflect the use by the NBER of higher frequency (monthly) data and a broader variety of indicators, such as employment, bank clearings, and department store sales. Also, since the analysis in this section uses annual data, differences might arise regarding the dating of business cycles, compared to the following section, which uses quarterly data.Recessions Are Becoming Milder and Less Frequent
Recessions have become less severe and less frequent over time (Table 3.1 ). During the prewar period, the average decline in real GDP from peak to trough was 4.3 percent, and Recessions in the United States were on average deeper than in the United Kingdom, owing in part to greater financial instability in the United States, which did not have a central bank. Recessions were exceptionally deep (—8.1 percent on average) during the interwar period, mainly reflecting the Great Depression (Box 3.2 ). The severity of Recessions moderated significantly after World War II, with the proportion of Recessions in which output declined by just 0-2 percent almost doubling. Recessions were somewhat milder in the Bretton Woods period compared to the post-Bretton Woods period, partly reflecting the oil price shocks of the later period.2
eBook - PDFRecessions and Depressions
Understanding Business Cycles
- Todd A. Knoop(Author)
- 2009(Publication Date)
- Praeger(Publisher)
The NBER defines a recession as two or more consecutive quarters of negative GDP growth. This implies that an expansion is two or more consecutive quarters of positive GDP growth. The peak of an expansion is the point in time at which the level of GDP reaches its maximum before it starts to decline. Thus, the peak of an expansion dates the beginning of a recession. Likewise, the trough of a recession is the point in time at which GDP falls to its lowest level before it begins to rise again, meaning that a trough dates the beginning of an expansion. Figure 2.1 graphs real GDP growth rates in the United States between 1948 and 2008 and indicates the dates of peaks (beginning of Recessions) and troughs (end of Recessions). Table 2.1 provides a complete list of business cycles (measured from peak to peak) in the United States since dating began in 1854. Looking at recent business cycle episodes, there have been 11 postwar Recessions in the United States. The last complete recession began in March of 2001 and ended in November of that same year, making it one of the shortest Recessions ever. Before this, the United States experienced the longest expansion ever recorded. This expansion lasted more than 10 years, from March 1991 to April 2001. The recession in the United States associated with the current global financial crisis began in December of 2007. At the time of this writing this building recession had not yet reached its trough. Like any specific definition of a difficult concept, the NBER’s definition of what constitutes a recession has been criticized along a number of lines. One problem with this definition is that a lag exists between getting data and making decisions. Output must be falling for at least six months before the NBER will declare a recession. This means that the economy is already at least half a year into a recession before it can be officially recognized as one by economists.
eBook - ePubRecession Prevention Handbook
Eleven Case Studies 1948-2007
- Norman Frumkin(Author)
- 2017(Publication Date)
- Routledge(Publisher)
Ideally, there would be no Recessions. However, given the complex interactions among buyers, sellers, workers, investors, borrowers, and lenders, it is utopian to expect that the economy will not, from time to time, get off kilter and deteriorate into recession. 11 When a recession occurs, it is hoped that it will be short-lived and that the recovery will be robust. Table 1.1 under the above section on business cycles and Recessions shows the duration of Recessions since the end of World War II. Eight of the eleven Recessions lasted less than one year, ranging from six to eleven months. Two Recessions, 1973–75 and 1981–82, lasted sixteen months each. The recession of 2007–9 was in progress for seventeen months when this manuscript was completed in June 2009. The duration of a recession does not fully reflect the length of time it takes workers to find new jobs or the long-term earnings losses they experience due to job losses (see the section below entitled Jobless Recoveries from Recent Recessions). Recessions from the Late 1940s to the 2000s This section summarizes the economic impacts of the eleven Recessions since the end of World War II, as measured by the following economic indicators: • Employment • Unemployment • Real weekly earnings • Poverty • Real GDP (gross domestic product) • Corporate profits • Proprietors’ income This review provides statistical evidence of how the Recessions affected the overall economy, the lives of the American people and their families, and American businesses. Each discussion begins with a description of the content of the indicator, which is followed by an analysis of the cyclical movements of the indicator in the eleven Recessions. The data used here are the most recently revised statistics depicting these events. They are keyed to the monthly cyclical turning points of the general economy, as determined by the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) and as shown previously in Table 1.1
No longer available |Learn moreAn Economic History of the United States
Connecting the Present with the Past
- Mark V. Siegler(Author)
- 2017(Publication Date)
- Red Globe Press(Publisher)
366 18 Recessions, Depressions, and Stabilization Policies The growth of the American economy has gone through great fluctuations around its impressive long-run trend. In some periods, real GDP is above its long-run trend (as it was during World War II), while in other periods growth is negative and below its long-run trend. For example, during the Great Depression from 1929 to 1933, real GDP fell by over 25 percent, while the unemployment rate exceeded 20 percent. In the Great Recession, real GDP fell by more than 4 percent from the second quarter of 2008 to the second quarter of 2009. These ups and downs in aggregate economic activity are called economic fluctua-tions or business cycles. The term “business cycles” is somewhat of a misnomer since they are not cyclical in nature, but occur at irregular intervals, and with differing degrees of severity. In recent years, “economic fluctuations” has been the preferred term, so this is what is generally used throughout the chapter, but “business cycles” and “economic fluctuations” are synonymous. This chapter discusses how and why the economy fluctuates, and looks at some of the more dramatic episodes in U.S. history. Because of its depth and duration, there is particular emphasis on the Great Depression of the 1930s. The Great Inflation of the 1970s and the Great Recession from 2007 to 2009 are also discussed. Recessions, Depressions, and Stabilization Policies 367 18.1 MEASUREMENT AND PROPERTIES OF ECONOMIC FLUCTUATIONS The National Bureau of Economic Research (NBER) defines and determines official U.S. business cycle dates. While most would assume that the “National Bureau of Eco-nomic Research” is a government agency, it is actually a private, nonpartisan, non-profit, research institution, founded in 1920. The NBER Business Cycle Dating Committee consists of nine prominent economists who determine when the U.S. economy has entered a recession and when an expansion has begun.
eBook - PDF- P.M. Ananth(Author)
- 2020(Publication Date)
- Society Publishing(Publisher)
Impact of Recession on Labor Market 37 A domino effect ensues, where the increase in the unemployment rate results in an overall decline in consumer spending, further slowing the growth rate, which again forces business organizations to lay off more workers (Figure 2.1). Figure 2.1. Protest by employees during the recession. Source: Image by Wikimedia commons. 2.2.1. Growth and Employment Before assessing and evaluating the relationship between Recessions and unemployment with each other, there is a need to examine the factors that drive growth and employment. Growth in an economy is measured by the gross domestic product (GDP). GDP of a country refers to the total value of products and services produced in a financial year by a country itself. There are majorly two key factors that drive growth: consumer spending and business investment. 2.2.2. Consumer Spending If there is a high rate of consumer spending, this means that that total consumer spending is in terms of purchases of clothes, homes, cars, and electronic devices. As a result of this expenditure incurred by customers, jobs, or employment is created in industries such as in the clothing as well as retail sectors, banks that supply the credit cards and mortgages loans that consumers use, as well as any business that sells and caters to consumers. Causes and Effect of Urban Unemployment 38 2.2.3. Business Investment If the economic outlook seems to be in favorable conditions, companies increase their overall investment in their businesses for the medium to long-term by expanding and improving their operations. Spending by business organizations as well as their investment typically includes large purchases of equipment or technology to improve their overall production capacity. In doing this, companies hire workers to deliver services of added production, sales, and marketing staff as well as software engineers for programming as well as for the functioning of machinery.
eBook - PDF- John E. Marthinsen(Author)
- 2020(Publication Date)
- De Gruyter(Publisher)
The duration of an expansion is from the cycle ’ s trough to its peak. The entire business cycle can be measured from one peak to the next peak, or it can be measured from one trough to the next. In Figure 14.1, the business cycle is measured from peak to peak. https://doi.org/10.1515/9781547401437-014 To identify the phases of a business cycle, a nation needs to measure its real economic activity , but how is this done? Often, real GDP is used as a proxy. An increase in real GDP means that production is rising, which usually in-creases employment and improves economic conditions. Declining real GDP im-plies that the opposite is happening. The association between real GDP and the business cycle is so strong that the media and many analysts commonly define a recession as a decline in real GDP for at least two consecutive quarters. Even though this definition appeals to common sense, it is only a practical guideline (i.e., unofficial shortcut) and not the way Recessions and expansions are officially measured or dated. 1 Business Cycle: Peak to Peak Economic Activity Peak Peak Trend line Trough Expansion Recovery Recession Contraction Time (Months) Figure 14.1: Recessions and Expansions During the Business Cycle. 1 To prove that the two-consecutive-quarters rule is a shortcut or approximation (and not an offi-cial rule) for defining Recessions, we only need to look at historical records. From 1947 to 2019, the United States suffered 12 Recessions. In 10 of them, real GDP fell for at least two consecutive quar-ters, but two official Recessions (i.e., from April 1960 to February 1961 and from March 2001 to November 2001) occurred without real GDP falling for two consecutive quarters. There was one downturn in economic activity (from January to July 1947) during which real GDP fell for two con-secutive quarters without triggering an official recession. To understand who officially dates U.S. Recessions, see “ Who Measures U.S.
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