Question

If people believe that the economy’s output level is about to fall, how may their actions aggravate the problem?

Why will some people suffer more than others from a downturn in economic activity?

Answer 1

If people believe that the economy’s output level is about to fall, their actions might aggravate the problem because then, they would spend less and keep more money in their hands. This would lead to less investment by them which would further decrease the economy's output and lead to less demand for workers. Less demand for workers would lead to job losses and unemployment would rise. Rising unemployment would further decrease the aggregate demand in the economy and the prices would fall further. So, the people's actions further aggravates the problem.

Some people suffer more than others from a downturn in economic activity because there are many poor people who does not have much savings and depends on their daily activities. These people are mainly daily wage workers and informal sector workers who does not have any guarentee of their jobs. So, these people will suffer more than others who have some savings to continue consuming basic necessities such as food and shelter.