18 of 27 The Great Depression of the 1930's and the Great Recession from 2007 to 2009 are two major economic downturns in U.S. history. Classify each characteristic according to the downturn that it describes. The Great Depression The Great Recession It is thought to have resulted from reductions in both aggregate demand and aggregate supply. The unemployment rate peaked at just over 25%. It is thought to have resulted from reductions primarily in aggregate demand. The biggest annual decline in real GDP was 3.4%. The biggest annual decline in real GDP was 26.5%m The unemployment rate peaked at just over 10%. Policy makers used innovative strategies to increase the money supply. Answer Bank

18 of 27 The Great Depression of the 1930's and the Great Recession from 2007 to 2009 are two major economic downturns in U.S. history. Classify each characteristic according to the downturn that it describes. The Great Depression The Great Recession It is thought to have resulted from reductions in both aggregate demand and aggregate supply. The unemployment rate peaked at just over 25%. It is thought to have resulted from reductions primarily in aggregate demand. The biggest annual decline in real GDP was 3.4%. The biggest annual decline in real GDP was 26.5%m The unemployment rate peaked at just over 10%. Policy makers used innovative strategies to increase the money supply. Answer Bank

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter26: The Neoclassical Perspective

Section: Chapter Questions

Problem 2SCQ: Legislation proposes that the government should use macroeconomic policy to achieve an unemployment...

See similar textbooks

Similar questions

The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 24.3 shows. Plot the AD/AS diagram. Identify the equilibrium. Would you expect unemployment in this economy to be relatively high or low? Would you expect concern about inflation in this economy to be relatively high or low? Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium. How will the shift in AD affect the original output, price level, and employment?
Legislation proposes that the government should use macroeconomic policy to achieve an unemployment rate of zero percent, by increasing aggregate demand for as much and as long as necessary to accomplish this goal. From a neoclassical perspective, how bill this policy affect output and the price level in the short nm and in the long run? Sketch an aggregate demand/aggregate supply diagram to illustrate your answer. Hint revisit Figure 26.4.
The task I am struggling with: There were two major shocks to the U.S. economy in 2007, leading to the severe recession of 2007-2009. One shock was related to oil prices; the other was the slump in the housing market. This question analyses the effect of these two shock on GDP using the AD-AS framework. a) Draw typical aggregate demand and short-run aggregate supply curves. Label the horizontal axis „Real GDP“ and the vertical axis „Aggregate price level“. Label the equilibrium point E1, the equilibrium quantity Y1, and the equilibrium Price1. b) Data taken from the Department of Energy indicate that the average price of crude oil in the world increased from $54.63 per barrel on January 5, 2007 to $92.93 on December 28, 2007. Would an increase in oil prices cause a demand shock or a supply shock? Redraw the diagram from part a to illustrate the effect of this shock by shifting the appropriate curve. c) The Housing Price Index, published by the Office of Federal Housing Enterprise…
The task I am struggling with: Using aggregate demand, short-un aggregate supply, and long-run aggregate supply curves, explain the process by which each of the following government policies will move the economy from one long-run macroeconomic equilibrium to another. Illustrate with diagrams. In each case, what are the short-run and long-run effects on the aggregate price level and aggregate output? a) There is an increase in taxes on households. b) There is an increase in the quantity of money. c) There is an increase in government spending. Thank you very much for your help.
Implement the following economic models and explain graphicaly what happened in economic events using the following 1. IS-LM model and government intervention 2. Short run aggregate supply (SRAS) 3. Slow economic recovery. Including Philip curve
Aggregate demand and aggregate supply, based on a problem from “Principles of Economics” by N. Gregory Mankiw a) List the components of country’s GDP in an open economy. For each component, provide an example of an event that would cause a shift of the aggregate demand curve to the right.b) What will be the effect of such events on the level of prices and the real outcome in the short run? Provide a graph.c) What will be the effect of such events on the level of prices and the real outcome in the longrun? Update your graph
Figure 1: Hayek’s (Classical) AD-AS Model Economics Online. (n.d.). Aggregate Demand. Retrieved from http://economicsonline.co.uk/Managing_the_economy/Aggregate_demand.html Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not? Figure 2: Keynes’s AD-AS Model Economics Online. (n.d.). Aggregate supply. Retrieved from http://www.economicsonline.co.uk/Managing_the_economy/Aggregate+supply.html 2.1. In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation and recession? 2.2. In macroeconomics, the immediate short run is known as a length…
The task I am struggling with: Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which each of the following economic events will move the economy from one long-run macroeconomic equilibrium to another: Illustrate with diagrams. In each case, what are the short-run and long-run effects on the aggregate price level and aggregate output? a) There is a decrease in households´ wealth due to a decline in the stocks market. b) The government lowers taxes, leaving households with more disposable income, with no corresponding reduction in government purchases. Thank you very much for your help.
part C D 3 . An economy experiences an adverse supply shock. a) Draw an AD-AS diagram to illustrate the effect of the shock. Be sure to include the LRAS line. b) What happens to output in the short run? What form of output gap (positive or negative) is formed? What happens to the aggregate price level in the short run? c) How will the long run equilibrium be restored? (Assume there is no fiscal and no monetary policy to help the process.) Explain and add this to your diagram. d) Does the process create inflation or deflation?
42)Which one of the following is TRUE? Select one: a. 1929 to 1933 was the Great Depression b. 1979 was the first oil shock c. December 2007 to June 2008 was the Great Recession d. 1994 to 2000 was a recession in the U.S. e. 2008 was a recession in the U.S. caused by Paul Volcker increasing the interest rate
Go to http://www.econlib.org/library/Enc1/Recessions.html and review the material on recessions.a. What is the formal definition of a recession?b. What are the problems with the definition?c. What are the three D’s used by the National Bureauof Economic Research (NBER) to define a recession?d. Review Chart 1. What trend is apparent regardingthe length of recessions?
For Shock E: Suppose the economy starts in the long run equilibrium. Illustrate changes that the shock will cause in the short run (using AD-SRAS). Explain why each curve shifts. Determine how the price level and output will be affected in the short run. Mark the output gap on the diagram. Is the output gap positive or negative? Is the economy is booming, or is it in a recession? On the same diagram illustrate how the economy will adjust to the shock in the long run and explain the mechanism. Determine how the price level and output will be affected in the long run. E. The government raises unemployment benefits As time passes, because of high unemployment the wages in the economy will? (decrease/increase) As a result, the SRAS curve will shift ? (right/left), causing the price level to ? (increase/fall) and output to eventually return to its long run level Y*.