The business cycle is the short-run alternation between economic downturns and economic upturns (Investopedia n.d.). A recession is an economic downturn and happens in every country and some recessions are worse than others and the output of GDP and employment are falling farther and faster. The great depression lasted from 1929-1933 and was a deep prolonged downturn in the business cycle before a recovery/expansion of the business cycle occurred and GDP and employment started to rise (Krugman & Wells. 2012). The next recession lasted from 1981-1982 and was comparatively smaller than the first (Krugman & Wells. 2012). More recently in 2001 a slump in the economy was noted and was followed by the great rescission of 2007-2009 (Krugman & Wells. 2012). Recession is defined as a “period of at least two consecutive quarters (a quarter is three months) during which the total output of the economy shrinks” (Krugman & Wells. 2012). In the United States the National Bureau of Economic Research (NBER) is assigning the task of determining when a recession begins and the NBER looks at a variety of economic indicators such as employment and production (Krugman & Wells. 2012). Every business cycle recession has a negative impact on the economy the recession’s deferrer on the strength of the impact on the country. Consider the two charts for Figure 21-5 of the more recent recessions of 2001 and 2007. The Recession of 2001 did not last as long as the recession of 2007 and did not have as much of an economical hardship on the business cycle and as shown 2007 dipped greatly in industrial production. In the second chart it demonstrates a recession at the point the economy turns from expansion to recession or the business-cycle peak. Then in the chart once the recession starts to correct itself there is the point at which the economy turns from recession to expansion or the business-cycle trough (Krugman & Wells. 2012).
"Supply creates its own demand." (Investopedia n.d.). Circular flow models depict how money flows through the economy and the models consist of households and business or workers’ wages and money flowing back to the business from purchases of product. An examples of the circular cash flow model is demonstrated in figure 21-6.
“Firms produce output and then pay income to households and households then use this income to buy goods expenditure” (Pettinger. n.d.).
Unemployment Rate & Labor Force Participation Rate
Labor force is the amount of people who are employed and currently have a job and the people who are unemployed and currently do not have a job (Krugman & Wells. 2012). The labor force participation rate is calculated with people sixteen years of age and older that are employed, while the unemployment rate is measured by the percent of the total number of people sixteen years of age and older who do not have a job (Krugman & Wells. 2012).
The United States assigns the Bureau of Labor Statistics (BLS) with the task of tracking...