Figure 25-2 on page 647 discusses business cycles. While peaks and troughs of economic activity are a normal part of the business cycle, recessions are not. They represent a failure of economic policy. Go towww.econlib.org/library/Enc1/Recessions.html   andreview the material reported on recessions.

Figure 25-2

a. What is the formal definition of a recession?

b. What are the problems with the definition?

c. What are the three D s used by the National Bureau of Economic Research (NBER) to define a recession?

d. Review chart 1. What trend is apparent about the length of recessions

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Output, Y Money Supply, M + Rate of Money Supply Growth, Peak AM /M + Peak Peak 2 Trough (a) Aggregate output Trough (b) Money supply Trough (c) Rate of money supply growth 4 Peak Peak 5 Years Peak 5 Years 5 Years