Why do economists compare recessions to letters of the alphabet?
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During last night’s debate, moderator Chris Wallace asked the candidates a question about how they thought this economy would recover from the recession. The Trump administration has said the recovery will be V-shaped, while former Vice President Biden has said it’ll be K-shaped. We explain what that means.
When you’re a kid, you learn the alphabet song. It’s just a device to help you remember your letters.
This is kind of what economists are doing with the V-shape, K-shape thing. They’re using the alphabet as a device to explain how we bounce back from recessions.
“It’s sort of a catchy and almost cute way of summarizing a very complex situation,” said Seth Carpenter, chief U.S. economist at UBS.
Think of it this way: If you charted out U.S. GDP growth over time what shape would you see?
If it’s a V-shape, economic growth fell fast and hard but then bounced back just as fast.
There’s the U-shape, “where things fall, and then they take a long time at a low level, before starting to recover,” Carpenter said.
Also, the W-shape: up and down, up and down. The L-shape. The J-shape.
And the K-shape: one leg up, one leg down.
“The K is more nuanced,” said Erik Lundh, senior economist at research group the Conference Board. “It’s not talking about just headline GDP growth, it’s talking about how different groups inside of the economy are recovering.”
The term seems to have cropped up in response to this recession because certain industries, like restaurants, have been hit way harder than others. And so have certain people.
Lundh says you could have a recovery that’s V- or J-shaped and K-shaped, where the data shows the broader economy bouncing back but large groups being left out.
COVID-19 Economy FAQs
So what’s up with “Zoom fatigue”?
It’s a real thing. The science backs it up — there’s new research from Stanford University. So why is it that the technology can be so draining? Jeremy Bailenson with Stanford’s Virtual Human Interaction Lab puts it this way: “It’s like being in an elevator where everyone in the elevator stopped and looked right at us for the entire elevator ride at close-up.” Bailenson said turning off self-view and shrinking down the video window can make interactions feel more natural and less emotionally taxing.
How are Americans spending their money these days?
Economists are predicting that pent-up demand for certain goods and services is going to burst out all over as more people get vaccinated. A lot of people had to drastically change their spending in the pandemic because they lost jobs or had their hours cut. But at the same time, most consumers “are still feeling secure or optimistic about their finances,” according to Candace Corlett, president of WSL Strategic Retail, which regularly surveys shoppers. A lot of people enjoy browsing in stores, especially after months of forced online shopping. And another area expecting a post-pandemic boost: travel.
What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?
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