Assignment: The Business Cycle
Have stabilization policies reduced the severity of business cycles?
Macroeconomics grew out of the attempts to explain the recurrent fluctuations in economic activity; that is the premise of business cycle theory. The length of adjustment time and the economic impact of that adjustment is the subject of much debate among economists. Economists have proposed many policies to reduce the fluctuations in real gross domestic product due to the business cycle.
The Business Cycle Dating Committee of The National Bureau of Economic Research is the group that defines when the U.S. economy is in a recession or expansion period. The primary determinant of economic activity is real GDP. The committee uses the following definitions: "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."
Your key questions for this assignment are:
• Provide a brief (one paragraph) overview of this week's material.
• What is the business cycle?
• List and describe the recessions that have occurred since 1949.
• Examine each of those recessions and explain which recession was the most severe and which one was the least severe.
• Calculate the longest time between recessions and identify the recession at the beginning and the end of that longest period. Have the severity of recessions decreased over the post- war period?
• If a change in the severity of recessions is evident, why do you think this is?
The Business Cycle Dating Committee of The National Bureau of Economic Research is the group that defines when the U.S. economy is in a recession or expansion period. The primary determinant of economic activity is real GDP. The committee uses the following definitions: "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."
To investigate the answers to the questions, go to The National Bureau of Economic Research (NBER) website to identify when business cycles occurred during the post-World War II period.
The website is: www.nber.org/cycles.html.
The relationship between the real gross domestic product and the potential GDP is a good measure of the performance of the economy relative to the potential. Go to The St. Louis Federal Reserve web site and use the data on real GDP and potential GDP to answer the questions about the severity of recessions.
Potential GDP estimates: http://research.stlouisfed.org/fred2/series/GDPPOT
Real GDP http://research.stlouisfed.org/fred2/series/GDPC1/
Measures of severity might be the ratio of actual to potential real GDP, how much GDP fell, how long it fell, and how quickly it fell.
If you wanted to look at various business cycle theories, you can go to the following website: http://www.newschool.edu/nssr/het/schools/business.htm
Your final product will be a paper that:
• Addresses each of the topic/questions above in total.
• Is APA fortatted.
• The body is to be 2 pages minimum.
The requirements for your assignment are:
1. Answer each question fully
2. Define the overall subject of each question.
3. Cite at least three (3) resources from this week's materials.