What is an economic recovery and how is it related to unemployment?
Economic Recovery
Key macroeconomic variables, such as output, consumption and business investment, are shown to comove cyclically over time. This can be demonstrated by a diagram. An economic recovery is described as the period after an economic downturn in which the economy grows such that it returns to its trend rate of growth.
Relation to Unemployment
- Implicitly
If economic output increases either productivity has risen or unemployment has fallen. This can be seen simply, if a firm is producing more output it either needs more people working or to become more efficient.
- Through confidence
i) Business confidence, as businesses become more confident about the recovery they look to expand output and hire new workers.
ii) Consumer confidence, as individuals feel less risk of being unemployed, they will save less and spend more, increasing aggregate demand and increasing output further.
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