Question

In this assignment, you will study recessions using AD-AS model

1. Present two charts of an economy, one for the real GDP growth, and the other for inflation.

2. Highlight two periods of recessions.

3. Based on the price level data, discuss the causes of the recessions using AD-AS model.

4. Explain why AD/AS shifted at the time.

Sample HW:( This part is the sample of HW, you have to find another examples, numerical for the charts you have to find by you self).

Hong Kong quarterly real GDP growth (1992 - 2017)

Inflation in Hong Kong, (1991 to 2017)

Over 25 years, two significant recessions occurred, one started in 1998 and the other started in 2009.

According to the price level data, in 1998, there was deflation. We can conclude that the recession was caused by the decrease in AD. At that time, aggregated demand decreased because housing price plummeted, and the wealth of households dropped. Hence, consumption decreased and so the AD decreased.

According to the price level data, in 2009, there was slight deflation. We can conclude that the recession was caused by the decrease in AD. At that time, aggregated demand decreased because of the global financial crises, stock market tumbled and the wealth of households dropped. Hence, consumption decreased and so the AD decreased.

Answer 1

US: Real gross domestic product is defined as an inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. The U.S. GDP increased by 2.3 percent from the fourth quarter of 2017 to the first quarter of 2018. Annual inflation rate in the United States edged up to 2.5 percent in April 2018 from 2.4 percent in March. It is the highest rate since February 2017. Core inflation was flat at 2.1 percent. Inflation Rate in the United States averaged 3.27 percent from 1914 until 2018.

INDIA: The Gross Domestic Product in India expanded 7.2 % in Dec 2017, following a growth of 6.5 % in the previous quarter.The annualised inflation rate in India was 3.78% as of August 2015.

A recession is a business cycle contraction which results in a general slowdown in economic activity. It generally occur when there is a widespread drop in spending. A recession historically has been defined as two consecutive quarters of decline in GDP, the combined value of all the goods and services produced in any country. It differs from the gross national product (GNP), in that it does not include the value of goods and services produced in a country.

The Roosevelt Recession: (May 1937 - June 1938) - Duration 13 months, GDP decline - 3.4, Unemployment rate - 19.1%

In the Great Depression, GDP fell by 27% (the deepest after demobilization is the recession beginning in December 2007, during which GDP has fallen 5.1% as of the second quarter of 2009) and unemployment rate reached 10% .

The recession of 1937–1938 was an economic downturn that occurred during the Great Depression in the US. By the spring of 1937, production, profits, and wages had regained their 1929 levels. Unemployment remained high, but it was slightly lower than the 25% rate seen in 1933. The individuals were not prepared to increase their spending during recession, whereas with fiscal policy government could provide the needed increased spending by decreasing taxes. Aggregate demand management is government's attempt to control the aggregate level of spending in the economy.  

During the great depression of 2007, the rate of inflation declined from 3.8% in 2008 to –0.4% in 2009. The recession was caused due to decrease in the AD.