Business Cycles and Long Term Economic Performance

The business cycle refers to fluctuations of output around a long-term trend, or recessions followed by recoveries and expansions. However, there is nothing regular about the timing and magnitude of these fluctuations. The relative economic stability of the post-World War II era reflects fewer or less severe economic disturbances. During the 1990s, many leaders from business and the public sector began to speak about a "New Economy" that features rapid economic growth, low unemployment, and moderate inflation (see Figure 16.3). Such virtuous economic performance is undoubtably nourished by the quickening pace of innovation, better worker education and training, and growing capital investment.

Superior economic performance has also been helped by the development of stabilization policy designed to offset temporary economic disruptions. Stabilization policy is particularly important in light of the fact that the costs of recessions are not shared evenly across the population. For most families, incomes remain roughly the same or continue to grow during a recession; the economic and social costs of recessions fall disproportionately on those who

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