Consider the following two alternative definitions of a recession: 1.A period of negative output growth. 2.A period when the output level is below the country's potential, or normal, level. Now consider a country that has been producing a lot of oil, whose oil wells have suddenly run out. This results in both its potential, and actual, output falling. Which of the following statements are correct? The policymaker using the second definition may underreact to the slowing output. The policymaker using the first definition may underreact to the slowing output. According to the first definition, the country is now unambiguously in a recession.
Consider the following two alternative definitions of a recession: 1.A period of negative output growth. 2.A period when the output level is below the country's potential, or normal, level. Now consider a country that has been producing a lot of oil, whose oil wells have suddenly run out. This results in both its potential, and actual, output falling. Which of the following statements are correct? The policymaker using the second definition may underreact to the slowing output. The policymaker using the first definition may underreact to the slowing output. According to the first definition, the country is now unambiguously in a recession.
Chapter12: Business Cycles And Unemployment
Section: Chapter Questions
Problem 5SQ
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