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June 26, 2008

The “R” Word

During our recent High School Fed Challenge competition, students were frequently asked to state the definition of a recession. Their answer: “A recession is defined as two consecutive quarters of negative GDP growth.”

Is this correct? No! I know several economic textbooks use this definition, but the National Bureau of Economic Research (NBER) officially decides whether or not we are in a recession. The bureau’s Web site at defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

Frequently these type of economic conditions coincide with two or more consecutive quarters of negative GDP growth, but not always. For example, the 2001 recession did not!

So…Are we in a recession?

By: Wade Rousse

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Posted by Wade at 9:41 PM | Comments (3) | TrackBack

June 23, 2008

Economics and Ball Room Dancing?

Economics is about making choices. We do it everyday, whether it’s in business or one’s personal life, resources like time or money are limited. This forces us to evaluate trade-offs and figure out which will make us happiest.

When you’re at McDonald’s, do you order the #1 combo meal or just a drink and the Big Mac? It depends. People value things differently. Value is subjective. If you value the fries more than the difference in price, you order the combo meal. If you don’t, you only purchase the drink and the Big Mac. This is the trade-off.

Another example: In March I really wanted to go to the Big Ten basketball tournament, but my adorable wife was not so enthused. However, after I begged and pleaded, she decided it might be OK to have a weekend-long college basketball experience. But only under the one condition that I would take ballroom dancing classes with her. The trade-off is straight forward. If the benefit (a fun time at the tournament) is greater than the cost (embarrassment of having to take ball-room dancing lessons), I should take her offer. If not, I should watch the basketball games at home on television.

You should not be intimidated by economics and economic jargon. Economics can and will be explained in every day language on this blog. Economic decision-making is everywhere, and that’s why I’m learning the Waltz.

By: Wade Rousse

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Posted by Wade at 10:13 PM | Comments (5) | TrackBack