Aug 10, 2017

what triggers recessions and what causes them to last long?

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Macroeconomics

INSTRUCTIONS:
The figure above shows the aggregate demand, short-run aggregate supply, and the long-run aggregate supply functions for a country (with no labels!) Currently the price level = 100 and the real GDP = 1000. The following questions are independent of each other. The answer to each question should be a short paragraph. 1. According to Keynes, what triggers recessions and what causes them to last long? 2. Suppose that aggregate demand decreases by 600 units due to investor pessimism. a. What will be the new price and the GDP levels in the short run? b. What can you say about the employment situation in the country? c. According to Keynes, what is the reason why the economy can get stuck at this point for a long time? 3. If the government does not conduct any economic policy, what will happen in the long run? Why? What do we call this process? 4. If the government decides to conduct an expansionary fiscal policy, what should it do? 5. What are the arguments raised by the opponents of conducting expansionary fiscal policy in a recession?
CONTENT:
NameCourse InstructorDateQuestion 1There are various reasons which triggers the process of recession in an economy such as the stock market crush, natural disasters anticipation like draught, and loss of employment. Intrinsic factors within an economy triggers recession, but the government fiscal policy has been described as the prime factor that triggers economic recession. The tightening of money supply by the Federal Reserve banks causes recession in that, it compel people to hang to the dollar reducing circulation of money. Consequently this leads to a reduction in expenditure and hence low money supply to enhance growth.Question 2The decrease of aggregate demand by 600 units from a GDP of 1000 will cause t he demand to settle at 400 units. The low level of demand will consequently cause the fall in the price at the market to settle at $70 from the initial equilibrium price level of $100. The new GDP will be 400 at the new price of $70.The fall in GDP is as a result of fall in the demand of products in the market which results to a reduction in the price of products. This will have an impact in the level of production as the supply has ...

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