Have stabilization policies reduced the severity of business cycles?

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 business cycle theories. 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 the real gross domestic product due to the business cycle.

Key questions

• What is the business cycle?
• How many recessions have there been since 1949?
• Which recession was the most severe? Least severe?
• What has been the longest time between recessions?
• Have the severity of recessions decreased over the post-war period (WWII)?

In a 4-6 page paper answer the questions asked above. 

Resources:

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 website 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