Correlations Between Recessions and Unemployment

The whole world along with the United States has experienced an economic downturn beginning with the recession in 2008, and unemployment from recessions affects all of society. There is always unemployment, it is natural, and thus dubbed the Natural Rate of Unemployment, and is normally 3%-5% of the labor force, due to frictionally unemployed workers with skills readily available and are either between jobs or fresh out of the education system. However, during recessions, economies face more severe unemployment rates. To completely understand unemployment and the recessions which cause it, one must know how to define GDP which defines recessions. GDP which is short for Gross Domestic Product is a method for measuring economic growth and prosperity. GDP is measured per year with a specific formula with multiple components:

GDP=C+I+G+ X_n

In the equation, “C” represents Consumer Spending, “I” represents Investments, “G” represents Government Spending, and the “X_n” represents net exports, which is exported goods subtracted by imported goods that year. Growth is measured by comparing the current years GDP to the previous GDP, and determining whether or not there was a positive or negative percentage of growth. If the amount produced exceeds the previous year, the economy is growing and experiencing expansion of the economy within the Business Cycle. If it is does not surpass the previous year’s growth, the economy is experiencing a recession and contractions of the economy within the Business Cycle. With recession defined, it is important to understand that unemployment stems from expansions and contractions in the Business Cycle, which is the natural cyclical way of how the economy functions. The contractions are where recessions ...

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...y when concluding that “In 1966, we had a stable dollar under the Bretton Woods gold standard. In 2009 and the years leading up to it, we had an extremely unstable dollar under Federal Reserve Chairmen Alan Greenspan and Ben Bernanke.” Evaluating the article, I have to agree with the cross comparison of American economics in 1966 and 2012, statistics and evidence depicted prove that investment spending has indeed decreased and that American firms along with U.S. fiscal and monetary policy are the only things keeping the recession alive. The GDP output shows that in the past years there has been growth, but the 4Q2012 GDP shows that investment as well as growth has decreased. America needs the confidence to spend again, like we had before, and the unemployment rate would see improvement as firms would grow the guts to hire people once again to end this stagnation.