EconExtra is a series of posts that go beyond the textbook, relate current events and recent developments in the economy to content standards, and provide resource suggestions to help you incorporate current events into your lessons.

The Head Problem

Despite all the positive economic news we’ve seen lately (aside from inflation), the past week has seen headlines with the “r” word (recession). Why are some economists predicting an impending recession, when employment has largely recovered from the pandemic, unemployment has fallen back to pre-pandemic levels, new jobless claims are the lowest we’ve seen in decades and GDP growth attracts again? In short, the high inflation is the reason.

Demand for many goods and services exceeds supply and has pushed prices up to levels not seen in 40 years. Pandemic-related labor shortages and supply chain problems have left us in this mess, and now the war is adding more uncertainty to the whole picture. Economists have stated that if the Fed had intervened earlier to tighten monetary policy, a “soft landing” may have been possible, but at the moment they think the Fed will really have to put the brakes on, which is likely to boost growth. to delay. economy down in the process.

The sources

There are two articles that students can read to understand the thinking of economists on this topic:

This CNN article, “Deutche Bank is the First Major Bank to Predict US Inflation,” gives a good introduction. This NYT article: “The US economy is booming. So why are economists worried about a recession?” provides a more detailed discussion, taking the reader through the arguments on both sides of the issue.

The assignment

Have students read both articles and answer the following questions.

How exactly could tighter monetary policy lead to a recession, given the position the economy was in when the policy changes began? Try to create a flowchart of the steps or actions/reactions that would lead to a recession. Has the Federal Reserve tightened monetary policy in the past without triggering a recession? What other (global) factors are making the Fed’s job harder this time around? What are the arguments put forward in support of the view that a recession, at least in the short term, is UNLIKELY? Which side of the debate would you choose and why?

About the author

Beth Tallman

Beth Tallman entered the working world armed with an MBA in finance and thoroughly enjoyed her early career in manufacturing and telecommunications, including a stint abroad. She took advantage of an involuntary divorce to try teaching high school math, something she’d always dreamed of. When fate intervened again, Beth seized the opportunity to combine her passion for numbers, money, and education to develop a curriculum and teach personal finance at Oberlin College. Beth now devotes her time to writing about personal finance and financial education, conducts workshops for students, and develops financial curricula and educational content. She is also treasurer of the Ohio Jump$tart Coalition for Personal Financial Literacy.

This post EconExtra: the elusive “soft landing” and potential for recession

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