308 PART FouR • PolicymAking
Recession
An economic downturn,
usually characterized by a
fall in the GDP and rising
unemployment.
Unemployment
The inability of those who
are in the labor force to
find a job.
Inflation
A sustained rise in the
general price level of
goods and services.ThE PoliTics oF
Economic DEcision mAking
Nowhere are the principles of public policymaking more obvious than in the economic
decisions made by the federal government. The president and Congress (and to a growing
extent, the judiciary) are constantly faced with questions of economic policy. Economic
policy becomes especially important when the nation enters a recession.good Times, Bad Times
Like any economy that is fundamentally capitalist, the U.S. economy experiences ups and
downs. Good times—booms—are followed by lean years. If a slowdown is severe enough,
it is called a recession. Recessions are characterized by increased unemployment, the
inability of those who are in the workforce to find a job. The government tries to moderate
the effects of such downturns. In contrast, booms are historically associated with another
economic problem that the government must address—rising prices, or inflation.measuring unemployment. Estimates of the number of unemployed are prepared by
the U.S. Department of Labor. The Bureau of the Census also generates estimates using
survey research data. Critics of the published unemployment rate calculated by the federal
government believe that it fails to reflect the true numbers of discouraged workers and
“hidden unemployed.” There is no exact way to measure discouraged workers, but the
Department of Labor defines them as people who have dropped out of the labor force
and are no longer looking for a job because they believe that the job market has little to
offer them.inflation. Rising prices, or
inflation, can also be a serious
economic and political prob-
lem. Inflation is a sustained
upward movement in the aver-
age level of prices. Another
way of defining inflation is as
a decline in the purchasing
power of money over time.
The government measures
inflation using the consumer
price index, or CPI. The Bureau
of Labor Statistics identifies a
market basket of goods and
services purchased by the typi-
cal consumer, and regularly
checks the price of that bas-
ket. Over a period of many
years, inflation can add up.
For example, today’s dollar is
worth (very roughly) about a
twentieth of what it was worth
a century ago. In effect, today’s
dollar is a 1914 nickel.LO4: Define unemployment,
inflation, fiscal policy, net public
debt, and monetary policy.
Job seekers wait in line at a job fair in Virginia in 2013. Why haven’t high
unemployment rates been more of an issue in recent years? (Andrew Harrer/Bloomberg
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