Thursday, June 11, 2009

Recessions & Depressions: Questions & Answers

A recession is a sustained decline in economic activity characterized by declines in national income, total output of goods and services, and employment.

A depression is an extremely severe recession.

Recessions and depressions occur when there is a prolonged decrease in overall spending on newly produced goods and services, which economists call aggregate demand (AD).

Gross domestic product (GDP) is the total value of new domestically produced final goods and services.

Aggregate Demand (AD) for Gross Domestic Product (GDP) = Consumption (mostly by households) + Investment (mostly by businesses) + Government Purchases (on newly produced goods and services) + Exports to foreign purchasers – Imports from foreign producers

AD (for newly produced U.S. goods & services) = C + I + G + X – M

Click on the questions below to link to the answers.

What is a recession and how does it differ from a depression?

What causes recessions and depressions?

Should the government do anything to prevent economic declines?

What types of government policies reduce the severity of recessions and reverse economic declines?

What about the supply-side argument that tax cuts induce businesses to increase investment and create jobs?

1 comment: