KW_Macro_Ch_06_Sec_02_The_Business_Cycle - chapter 6 >...

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>> Macroeconomics: The Big Picture Section 2: The Business Cycle chapter 6 As we mentioned in our opening story, the poor job market of 2002 created a diffi- cult time for all job-seekers, regardless of their skills. And it was particularly disap- pointing given that just two years earlier America had enjoyed a very strong job market. The short-run alternation between economic downturns and upturns is known as the business cycle. A depression is a very deep and prolonged downturn; fortunate- ly, the United States hasn’t had one since the 1930s. But what we have had are less prolonged economic downturns known as recessions, periods in which output and employment are falling. In contrast, economic upturns, periods in which output and employment are rising, are known as expansions (sometimes called recoveries ) . According to the National Bureau of Economic Research there have been 10 reces- sions in the United States since World War II. Over that period the average recession has lasted 10 months and the average expansion has lasted 57 months. The average length of time of the business cycle, from the beginning of a recession to the begin- ning of the next recession, has been 5 years and 7 months. The shortest business cycle The business cycle is the short-run alterna- tion between eco- nomic downturns, known as recessions, and economic upturns, known as expansions. A depression is a very deep and pro- longed downturn.
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2002 job-seekers began in March 2001. Figure 6-1 shows the history of the U.S. unemployment rate since 1948 and the timing of post World War II business cycles. The average unemployment rate over that period was 5.6%, and recessions are indi- cated in the figure by the shaded areas. What happens during a business cycle, and what can be done about it? Let’s look at three issues: the effects of recessions and expansions on unemployment; the effects on aggregate output; and the possible role of government policy. 2 CHAPTER 6 SECTION 2: THE BUSINESS CYCLE Recessions are periods of economic downturns when output and employ- ment are falling. Expansions, or recoveries, are peri- ods of economic upturns when output and employment are rising. Figure 6-1 12% 10 8 6 4 Unemploy- ment r ate Yea r 5.6 Average unemployment rate 1948 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2004 The Unemployment Rate and Recessions Since 1948 The unemployment rate normally rises during recessions and falls during expansions. As shown here, there were large fluctuations in the U.S. unemployment rate during the period after World War II. Shaded areas show periods of recession; unshaded areas are periods of expansion. Over the entire period from 1 9 4 8 to 2004, the unemploy- ment rate averaged 5.6%. Source:
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This note was uploaded on 04/10/2008 for the course ECONOMICS 103 taught by Professor Sheflin during the Spring '08 term at Rutgers.

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KW_Macro_Ch_06_Sec_02_The_Business_Cycle - chapter 6 >...

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