Question

Utilize the dynamic aggregate demand and aggregate supply model animations and videos in MyEconLab to analyze the macroeconomic factors that led to the 2007–2009 recession. How were GDP, inflation, and unemployment affected during the recession, and how does the model show this? What monetary policies and fiscal policies were implemented during the recession? How did the recession affect U.S. trade relations and the U.S. dollar exchange rate?

Answer 1

Answer:

The bubble burst in the real estate industry, discrepancies and flawed financial services industries and inability to repay the home loans by people, led to the beginning of 2007-09 recession.

How were GDP, inflation, and unemployment affected during the recession, and how does the model show this?

The reduction cause of GDP because aggregate demand came down and firms decreased supply in response to the decrease in demand. Inflation also came down because there were less takers of the goods in the market. The unemployment rate increased because firms got closed down and firms laid off employees to reduce the cost.

What monetary policies and fiscal policies were implemented during the recession?
The impact of recession and recover is a change in monetary and fiscal policy took place. As a part of monetary policy, interest rate came down, fed rates set up to 0% and money was supplied to enhance the credit off take. As a part of fiscal policy, government expenditure increased to stimulate the demand. Tax benefits were offered to the businesses to continue the operation.

Before the recession the USA companies had outsourced non-strategic part of their business in other countries. These outsourcing businesses got stopped during recession.

Therefore, the impact of recession the USA was also felt in other countries. It negatively affected the trade. But, it did not affect the strategic relations between the USA and the other countries.

How did the recession affect U.S. trade relations and the U.S. dollar exchange rate?
The US dollar exchange rate depreciated against the major currencies in the world as a result of fall in GDP and recession in the USA.