"Should We Learn to Love Recessions?"

Paper Summary:

This paper discusses and reviews an article that appeared in "The Economist" entitled "A Necessary Evil - Should We Learn to Love Recessions?" The paper describes the content of the article and the argument within it that recession may be necessary. The paper defines recession and discusses its implications, according to the article.

From the Paper:

"You may be asking yourself what does recession have to do with inflation and unemployment and is there a relationship between recession, inflation and unemployment. In the 1950s, the Phillips Curve appeared to indicate that policymakers could trade higher inflation for lower unemployment. Experience showed later that although inflating the economy could lower unemployment at least as high as before and rising inflation as well. After that realization, economists came up with NAIRU (non-accelerating inflation rate of unemployment). NAIRU is the rate of unemployment below which inflation would start to accelerate. However, this is not always the case. In the late 1990s, in both the U.S. and the UK, the unemployment rate fell below what most economists thought was the NAIRU, yet inflation did not pick up. As a result, some economists argued that technological and other changes brought upon by the new economy meant that inflation no longer existed. However, traditionalists felt that inflation was only resting (The Economist)."

Sample of Sources Used:

• The Economist. A Necessary Evil - Should We Learn to Love Recessions? September 26, 2002. http://www.economist.com/displayStory.cfm?story_id-1336117 Accessed: February 1, 2003.
• Colander, David. (2001) Macroeconomics. Boston. McGraw-Hill Irwin.

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