Table 9 lists the pattern of recessions and expansions in the U. The highest point of the economy, before the recession begins, is called the peak ; conversely, the lowest point of a recession, before a recovery begins, is called the trough. Thus, a recession lasts from peak to trough, and an economic upswing runs from trough to peak. The movement of the economy from peak to trough and trough to peak is called the business cycle.
It is intriguing to notice that the three longest trough-to-peak expansions of the twentieth century have happened since The most recent recession started in December and ended formally in June However, the effects of a severe recession often linger on after the official ending date assigned by the NBER.
Over the long term, U. At the same time, GDP has not increased the same amount each year. The speeding up and slowing down of GDP growth represents the business cycle. When GDP declines significantly, a recession occurs. A longer and deeper decline is a depression. Recessions begin at the peak of the business cycle and end at the trough. What are the typical patterns of GDP for a high-income economy like the United States in the long run and the short run?
The National Bureau of Economic Research. Thus an increase in real GDP i. In contrast, a decrease in real GDP a recession will cause a decrease in average interest rates in an economy. Jeopardy Questions. As in the popular television game show, you are given an answer to a question and you must respond with the question.
Previous Section. Table of Contents. Next Section. When the economy experiences an inflationary boom, the GDP gap is negative, meaning the economy is operating at greater than potential and more than full employment. The difference between the two represents the GDP gap. Keynesian macroeconomics argues that the solution to a recession is expansionary fiscal policy , such as tax cuts to stimulate consumption and investment, or direct increases in government spending that would shift the aggregate demand curve to the right.
For example, if aggregate demand was originally at ADr in Figure Keynes noted that while it would be nice if the government could spend additional money on housing, roads, and other amenities, he also argued that if the government could not agree on how to spend money in practical ways, then it could spend in impractical ways. For example, Keynes suggested building monuments, like a modern equivalent of the Egyptian pyramids.
He proposed that the government could bury money underground, and let mining companies get started to dig the money up again. These suggestions were slightly tongue-in-cheek, but their purpose was to emphasize that a Great Depression is no time to quibble over the specifics of government spending programs and tax cuts when the goal should be to pump up aggregate demand by enough to lift the economy to potential GDP.
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