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Unformatted text preview: There is no doubt, that this is the worse recession that the economy has seen since the Great Depression in the 1930s. This economy is said to have started going in recession at the end of 2007, but at that time we werent even aware that we were in one. This economy is very unstable because there are a lot of major components in the economy that we see are not at its best. Unemployment is high right now, and until the plans in the stimulus start to have a major effect on the economy, it wont go down much. Investment, and Consumption have gone down significantly since 2008. We are definitely in a stage where we havent reached potential but have rather gone below it. Our deficit is higher than ever before, and with the government spending money on many other sectors in the economy that are low right now, it is hard to see how we are going to pay this back. Other things crucial to the economy have gone down, such as the housing industry, consumer credit, and auto sales. With the Housing Industry being the biggest in the United States, it is a huge problem that needs to be resolved; if not the United States economy cannot start its recovery. Although all these point to negative outcomes for the rest of 2009, I feel that we need a little more time, because there is lag between the time the policy takes effect and the time it has an effect on the economy. However, after weve bottomed out, in 6-12 months we will start recovery, and will be at potential after a year. We are now at a stage where real GDP has fallen below Potential GDP. We know this first of all because there is high unemployment. Now Unemployment is at a crazy high of 8.9 in April 2009. Unemployment rose from 10, 602 to 13, 724, which raised the unemployment rate because the labor force stayed the same. We see the Unemployed people in 2009, which is 13.7 and we divide that by the labor force, which is 154731 we get 8.85 which is approximately 8.9 percent and thats our unemployment rate (Taylor, 2007, p. 530). The Unemployment rates from April 2008 until October 2008 was fluctuating, but after then, the unemployment rate was on an upward trend as we see from the graph which shows how the economy kept changing but then just kept getting progressively worse. (trading economics, US Unemp) So the Labor force didnt change much from 2007 but the unemployed people did. Because there is a decrease in AD for goods and services, thus the firm loses revenue. To compensate for the loss of revenue, the firm must cut it costs by laying off workers. Also with the low inflation it is inevitable for the real GDP to be below potential because, using the Inflation Adjustment line, it is easy to see that when it is low AD has shifted left, and the line has gone way down because of inflation, the real GDP will definitely be below potential....
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- Fall '10