How many recessions do you count?

Requirements: Not too long

Econ 2020, Extra Credit Assignment #1

The business cycle

After you have done this assignment, go to the “quizzes” module in e-learning. Open “ex cred quiz #1” and take that quiz. The questions on that quiz are the same questions that are in this assignment. The quiz questions are multiple choice and therefore one of the possible answers will be the number that I ask you to compute, etc.

DO NOT OPEN THE QUIZ UNTIL YOU ARE READY TO TAKE IT. IF YOU DO, YOU CANNOT TAKE THE QUIZ WITHOUT A PENALTY (POINTS DEDUCED FROM YOUR SCORE).

The number of extra credit points you will receive by taking this quiz = the number of questions you answer correctly MINUS 2. If that is negative, you get 0 points. So to earn extra credit, you need to answer at least 3 questions correctly.

Go to bea.gov. Go to Table 1.1.6. Look at quarterly data for real GDP from 1948 to 2015. We will define a recession two or more consecutive quarters of decreasing real GDP. Consider these made-up numbers for RGDP:

quarter I II III IV I

120.5 121.7 120.2 120.7 121.9.

Was there a recession during this 5 quarter period? No. RGDP only decreased from the second quarter to the third quarter. What about this sequence?

I II III IV I II III

145.1 146.2 147.0 146.0 146.7 146.1 147.2

Again, there was no recession. The period from III on year to III the next is a period of no-growth. Finally, what if

I II III IV I II III

207.1 211.3 213.0 212.1 211.2 211.9 213.1

There was a recession in this period. From III to I the next year, since RGDP fell from 213.0 to 212.1 and then from 212.1 to 211.2.

OK, looking at the data,

1. How many recessions do you count? ____

2. When did the last recession experienced by the U.S. economy in the period from 1948 to 2015

begin? ________

3. Calculate the percentage decrease in output during the recession that began in the second

quarter of 1974 and ended in the first quarter of 1975: _______

4. Does it appear that a decrease in aggregate demand caused that recession, yes or no?

5. Why did you answer 4. as you did?

Now look at annual data for real GDP beginning with 1929. The recession that began in 1929 is referred to as the Great Depression. This was by far the worst recession the U.S. has experienced in the past 100 years.

6. What year did that depression end? ____

7. What was the percentage decrease in real GDP from peak to trough, to the nearest percentage

point? _____

8. Did aggregate demand decrease during this period, yes or no?

9. What was the percentage change in aggregate demand from peak to trough, to the nearest

percentage point? ____

Go to Table 1.1.9 and look at the deflator for gross domestic product (first line in that

table).

10. What happened to the deflator from peak to trough?

11. What does that say about how prices changed from peak to trough, on average?

Use the graph below to guide you in determining peak and trough:

RGDP

I II III time

In this graph, quarter I is the peak (when the recession begins) and quarter III is the trough (when it ends). Keep in mind that the data generated by an economy often isn’t as nice and clean as the data upon which this graph is based.

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