Question

1. Explain the difference between economists’ definition of a recession as given by NBER and the definition used by journalists.

2. Explain the Dollar-Kraay results.

3. What are the implications of Solow’s Big Surprise for rich countries? For poor countries?

Answer 1

Q1) The media (journalist) definition of a recession is two consecutive quarters of negative growth. On the other hand, the NBER (economist's) definition of a recession is a significant drop in the economic activity as shown by major macroeconomic indicators like real GDP and employment, which spread for a few months across the economy as a whole.

The distinction is clear from an example. Suppose US has Q1 growth of -40% and Q2 growth of 0.5%. According to the media definition, this is not a recession but it is a recession according to the economists' definition.

If US has Q1 growth of -0.25% and Q2 growth of -0.01%, this is a recession according to the media definition but not a recession according to the economists' definition.