Economic Growth, Business cycle and structural stagnation – Flashcards

Increases in total output and per capita total output.

1. A recession is a short period of declining output whereas a structural stagnation is a period of protracted slow growth and high unemployment. 2. A structural stagnation is a short period of declining output whereas a recession is a period of protracted slow growth and high unemployment.

The structural stagnation theory is more pessimistic because it argues that the economy must undergo structural changes before it will return to its long-term growth trend. An example is that with structural stagnation, workers will have to accept lower wages or learn new skills before the economy returns to potential. In the conventional business cycle view, the economic recession is short-lived. Continuing the example that is given for structural stagnation, those who become unemployed will be rehired without having to accept lower wages or learn new skills.

Structural unemployment is unemployment caused by the institutional structure of an economy or by economic restructuring making some skills obsolete, whereas cyclical unemployment is unemployment resulting from fluctuations in economic activity.