The Great Depression was by far the worst economic crisis in U.S. history. But although the economy managed to avoid catastrophe for the rest of the twentieth century, it has experienced many ups and downs.

It’s true that the ups have consistently been bigger than the downs: a chart of any of the major numbers used to track the U.S. economy shows a strong upward trend over time. For example, Figure 12-2 shows total U.S. private-sector employment (the total number of jobs offered by private businesses) measured along the left vertical axis, with the data from 1985 to 2014 given by the purple line. The graph also shows the index of industrial production (a measure of the total output of U.S. factories) measured along the right vertical axis, with the data from 1985 to 2014 given by the red line. Both private-sector employment and industrial production were much higher at the end of this period than at the beginning, and in most years both measures rose.

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But they didn’t rise steadily. As you can see from the figure, there were three periods—in the early 1990s, in the early 2000s, and again beginning in late 2007—when both employment and industrial output stumbled.

The economy’s forward march, in other words, isn’t smooth. And the uneven pace of the economy’s progress, its ups and downs, is one of the main preoccupations of macroeconomics.

Figure 12-3 shows a stylized representation of the way the economy evolves over time. The vertical axis shows either employment or an indicator of how much the economy is producing, such as industrial production or real gross domestic product (real GDP), a measure of the economy’s overall output that we’ll learn about in the next chapter. As the data in Figure 12-2 suggest, these two measures tend to move together. Their common movement is the starting point for a major theme of macroeconomics: the economy’s alternation between short-run downturns and upturns.

A broad-based downturn, in which output and employment fall in many industries, is called a recession (sometimes referred to as a contraction). Recessions, as officially declared by the National Bureau of Economic Research, or NBER (discussed in the upcoming For Inquiring Minds), are indicated by the shaded areas in Figure 12-2. When the economy isn’t in a recession, when most economic numbers are following their normal upward trend, the economy is said to be in an expansion (sometimes referred to as a recovery).

The alternation between recessions and expansions is known as the business cycle. The point in time at which the economy shifts from expansion to recession is known as a business-cycle peak; the point at which the economy shifts from recession to expansion is known as a business-cycle trough.

The business cycle is an enduring feature of the economy. Table 12-2 shows the official list of business-cycle peaks and troughs. As you can see, there have been recessions and expansions for at least the past 155 years. Whenever there is a prolonged expansion, as there was in the 1960s and again in the 1990s, books and articles come out proclaiming the end of the business cycle. Such proclamations have always proved wrong: the cycle always comes back.

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Not many people complain about the business cycle when the economy is expanding. Recessions, however, create a great deal of pain.

The most important effect of a recession is its effect on the ability of workers to find and hold jobs. The most widely used indicator of conditions in the labor market is the unemployment rate. We’ll explain how that rate is calculated in Chapter 14, but for now it’s enough to say that a high unemployment rate tells us that jobs are scarce and a low unemployment rate tells us that jobs are easy to find.

Figure 12-4 shows the unemployment rate from 1988 to 2016. As you can see, the U.S. unemployment rate surged during and after each recession but eventually fell during periods of expansion. The rising unemployment rate in 2008 was a sign that a new recession might be under way, which was later confirmed by the NBER to have begun in December 2007.

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Because recessions cause many people to lose their jobs and make it hard to find new ones, they hurt the standard of living of many families. Recessions are usually associated with a rise in the number of people living below the poverty line, an increase in the number of people who lose their houses because they can’t afford the mortgage payments, and a fall in the percentage of Americans with health insurance coverage.

You should not think, however, that workers are the only group that suffers during a recession. Recessions are also bad for firms: like employment and wages, profits suffer during recessions, with many small businesses failing.

All in all, then, recessions are bad for almost everyone. Can anything be done to reduce their frequency and severity?

Modern macroeconomics largely came into being as a response to the worst recession in history—the 43-month downturn that began in 1929 and continued into 1933, ushering in the Great Depression. The havoc wreaked by the 1929–1933 recession spurred economists to search both for understanding and for solutions: they wanted to know how such things could happen and how to prevent them.

As explained earlier, the work of John Maynard Keynes suggested that monetary and fiscal policies could be used to mitigate the effects of recessions, and to this day governments turn to Keynesian policies when recession strikes. Later work, notably that of another great macroeconomist, Milton Friedman, led to a consensus that it’s important to rein in booms as well as to fight slumps. So modern policy makers try to “smooth out” the business cycle. They haven’t been completely successful, as a look back at Figure 12-2 makes clear. It’s widely believed, however, that policy guided by macroeconomic analysis has helped make the economy more stable.

Although the business cycle is one of the main concerns of macroeconomics and historically played a crucial role in fostering the development of the field, macroeconomists are also concerned with other issues we examine next.