WrittenTopic1Recker - Country A is far from long run...

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Country A is far from long run equilibrium. Real GDP is the value of all final goods and services produced in the economy during a given year, then calculated using the prices of a selected base year (Krugman & Wells, 2013, p. 114). Country A is experiencing what’s called a recessionary period, or recessionary gap. From our text, Krugman writes, “A recessionary gap inflicts a great deal of pain because it corresponds to high unemployment” (Krugman & Wells, 2013, p. 195). Country A is experiencing high unemployment. What is also interesting is that Krugman also says, “An aggregate output level lower than potential output means high unemployment rate” (Krugman & Wells, 2013, p. 187). A recessionary gap is synonymous with this quote because a recessionary gap happens when aggregate output is below potential output (Krugman & Wells, 2013, p. 195). Recession can actually be responsible for the fall in inflation. A severe recession in 1981 drove the unemployment rate up to an insanely high10.8%, but made inflation decrease (Krugman & Wells, 2013, p. 139). It is my opinion, along with modern economists, that expansionary monetary policy should be used to fight this recession and return the economy to long run equilibrium. An expansionary monetary policy lowers the interest rate and increases aggregate demand, which in turn, increases output (Krugman & Wells, 2013, p. G-3). Krugman writes, “Nearly all
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