What We Know About Recessions Might Be Wrong
What are business cycles? Many people think that booms naturally lead to busts -- that excesses built up during good times lead inevitably to a crash. Today’s economists don’t see it that way. Modern macroeconomists think that recessions and booms are random fluctuations around a trend. These fluctuations tend to die out -- a deep recession leads to a fast recovery, and a big expansion tends to evaporate quickly. Eventually, the trend re-establishes itself after maybe five years. No matter what happens -- whether the central bank lowers interest rates, or the government spends billions on infrastructure -- the bad times will be over soon enough, and the good old steady growth trend will reappear.
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