RECESSION OF 1989

The state of the economy during the time from 1989 to 1993 was a natural occurrence of the U.S. business cycle.  The business cycle has peaks, valleys, expansions and recovery.  The traditional definition of a recession is two consecutive business quarters of declining GDP.  A recession is not unexpected; it is a natural response of market correction in a capitalist economy.

 From the data collected for the Federal Reserve exercise real GDP for the year of 1991 declined, indicating a recession in 1991.  Analyzing the time series for real GDP in 1991 it fell 1.15%, or fell $56.5 billion dollars.  In 1992 the economy had good recovery of 1.74% growth or a rise in real GDP of $98.9 billion dollars.  Then a large expansion growth of 4.36% or 214.6 billion dollars.  The jump in real GDP growth in 1993 most likely is a result of lagging expansionary policies effects by the Federal Reserve coming to surface or catching up with the market.  Nominal GDP in the time series data is unadjusted for inflation and not good representation of the U.S. economy.  It is noteworthy that nominal GDP slowest year of growth was in the recession year of 1991.  An important leading economic indicator is the money supply.  The money supply data of M2 (M2 = M1+Lg savings accounts) increased every year from 1989 to 1993, however in the recovery year of 1992 M2 growth was the weakest with an increase of $49 billion.

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Another leading economic indicator to analyze the state of the economy is the unemployment rate.  From 1989 to 1992 unemployment increased.  Unemployment jumped 1.2% from 1990 to 1991.  A strong indication of a recession.  In 1992 unemployment   increased .7% signaling a slow recovery from the recession.  Business likely had fears about the recovery.  A good indication of the economic outlook is the inflation rate of the economy.  From 1990 to 1993 inflation was low and growing at a slowing rate.  This slowing growth rate known as disinflation is typical in a recession.  Disinflation is likely why at the end ...

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