Answer of tutorial macro.docx - Answer 1 Asdasd 2 The...

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Answer 1. Asdasd 2. The business cycle is the natural rise and fall of economic growth that occurs over time. The cycle is a useful tool for analyzing the economy. It can also help us to make better financial decisions. Business cycle also can be defined as fluctuation in real GDP which is represent recurrent up and down movement in economic activity. 3. If an economy is experiencing a recession in the short run, classical economists would say that the government should do nothing and the economy will correct itself in the long run. In the long run, workers will be forced to take nominal wage cuts, thus lowering inflation expectations and the costs of production. The short-run aggregate supply curve will shift to the right toward the long-run aggregate supply curve until full employment is restored. The price level decreases, real GDP increases, and unemployment decreases. 4. Saving exceeds investment, we get a recession . Classical theory suggested any fall in investment would lead to lower interest rates; this fall in interest rates would reduce saving, increase investment and cause the economy to return to a new equilibrium of full employment. However,
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