To submit requests for assistance, or provide feedback regarding accessibility, please contact


The Economic Theory of Crises

Paul Krugman

Lesson time 08:53 min

Learn how these concepts played out in Japan's 1998 crash and the 2008 recession in the US.

Paul Krugman
Teaches Economics and Society
Nobel Prize-winning economist Paul Krugman teaches you the economic theories that drive history, policy, and help explain the world around you.


The Great Recession of 2008 had a lot of people questioning what a recession was—and why it happened in the first place. History provides invaluable lessons to economists who study upturns and downturns, but it is also important for the average citizen to understand how consumer behavior may impact markets, especially those that end up in a significant decline. What Is a Recession? A recession is a slow down or contraction of the economy over a business cycle. The period of time and what exactly indicates a recession are not tightly defined. Some countries and economists define a recession as a contraction over two consecutive quarters, some define it as six months, and some do not define the time period at all taking a more complete and nuanced view of different data points to indicate a recession. What Causes a Recession? Negative Gross Domestic Product (GDP) growth, a reduction in consumer spending and in asset prices, and drops in the stock market and in interest rates are all indicators of a recession. Recessions, and therefore things like negative GDP growth, unemployment, drops in interest rates and asset prices, etc., have been caused by bank runs and asset bubbles (see below for explanations of these terms). What Are the Indicators of a Recession? There are a number of factors that can indicate a recession: - A rise in unemployment - A rise in bankruptcies - Lower consumer spending and consumer confidence - A reduction in asset prices This includes the cost of homes, and a fall in the stock market, to name the main indicators. All of these factors can lead to an overall contraction of the Gross Domestic Product. The European Union and the United Kingdom define a recession as two or more consecutive quarters of negative real GDP growth. In the United States, the National Bureau of Economic Research (NBER) tracks the indicators of a recession, and will determine whether the US economy is in recession. The NBER takes into account many different factors, like those listed above, to determine whether the US economy is in recession. For example, the NBER declared a recession in the early 1990s even though the GDP contracted three quarters, none of them consecutive. The yield curve is another indicator of recessions, and one the NBER also uses to predict or declare a recession. A yield curve is a line on a graph that tracks the interest rates of bonds that are equal in credit but have different times at which they mature. A common yield curve looks at US Treasury Debt at three month, two year, five year, ten year, and 30 year maturity benchmarks. There are three different types, or shapes, or a yield curve that indicate different stages of economic growth. 1) Normal A normal yield curve means that longer term bonds have a higher yield than short term bonds. This generally indicates a healthy economy and positive economic growth. 2) Flat A flat yield curve means that longer term bonds are beginning to...

Think like an economist

For Nobel Prize-winner Paul Krugman, economics is not a set of answers—it’s a way of understanding the world. In his economics MasterClass, Paul teaches you the principles that shape political and social issues, including access to health care, the tax debate, globalization, and political polarization. Heighten your ability to read between the lines and decipher the underlying economics at play.


Students give MasterClass an average rating of 4.7 out of 5 stars.

Embarrassed to say, but the "Do you even FRED, bro?" line is what tipped me across the threshold of pulling up the site (smiles). Absolutely, delightfully understandable and informative on a topic that I did not know could possibly be so. Bravo. - Curtis

Up to date, and extremely enjoyable. The class is easy to digest and understand as well. It has lit the spark to want to learn more.

Wonderful presentation of an expert who sees the effect the economy has on our society, and how best to manage it for the benefit of us all..

My expectations were over-realized in this course presenting a difficult topic in difficult times admitting personal bias without apology. Totally honest economic portrait of our world and society and how we may individually try to interpret it. His presentation manner was clear and sincere. Great course.


A fellow student

What I don’t understand is if economics is so mathematically based, why is there so much contradiction among the experts? How come they don’t all agree if it just comes down to numbers, equations and projection models? You’re all using the same data so how come everybody says majorly different things? Sometimes in complete opposition to each other. Please can someone explain this?

A fellow student

would be possible to post a new lesson about paul krugman's views on the current crisis, and what may happen to the economies because of coronavirus crisis? thanks

A fellow student

You are not a phony, lol. I really enjoy listening to you. I have a Business Economics degree from Miami (O) University. I agree with everything you are saying.

A fellow student

It would be useful to compare the US or Japan outcome of printing money to what happened in Venezuela, Argentina, Weimar Republic, etc...Actually I think that Japan and US are the outliers in this story because in 99% of the cases if you look into Economic History books printing money creates inflation. Maybe it is not just if the central bank creates money, but it is also how much, how long, the situation of the nation in the world trade (reserve currency), who gets the new money ...Anyway, with the "experiment" of the new QE infinity we are going to know rather soon if even for the US there is a limit to printing money without creating inflation, really interesting.

Michael C.

I believe this lesson is missing the punchline. I understand the message. In a recession, the Fed can insert large amounts of money into the economy without prices for the average consumer increasing, subsequently avoiding inflation. But, why? Is it because the insertion of money is not affecting consumer behavior? If consumer behavior is not being affected, then what is even the reason for the federal money deposit into the economy in the first place? What economic principle helped you realize that Bernanke's strategy would work and why did it work for Japan? Many Questions.

A fellow student

How do we know for sure that CPI is the only (and correct) index to look at to determine inflation rates? It doesn't incorporate cost of education going up, doesn't incorporate a lot of the hidden costs of healthcare and insurance, it doesn't factor in asset price inflation, etc. We've seen the buffet ratio (Total marketcap : GDP) rise significantly, which proves there is clear asset bubbles.

Fraser M.

The two graphs he showed for the US and Japan post-crisis till the time this was posted showed the money continuing to go up and then staying up. Why has the cash in circulation not come back down to be closer to the consumer prices line?

A fellow student

There is indeed no consumer price inflation in US since QE, but there was significant asset price inflation as measured by stock market P/E or cap rate. Just wonder what Professor thinks about it?

Maxwell N.

For those trying to understand why printing money during a recession does not lead to inflation, this article is helpful:

A fellow student

After watching this class I thought I lack economic knowledge to understand why prices didn't go up after printing more money. Now, after I read people comments I can conclude that this story is missing crucial punchline.