The US economy was hit two shocks at the onset of the 2008
Global Financial crisis. First, it faced a negative supply shock
due to a doubling of the price of oil, large price increases in
other commodities and the collapse of a domestic housing bubble.
Soon after, a negative aggregate demand shock followed, as consumer
optimism dropped, while a reduction in credit supply in the
financial sector caused firms to cut back on their investment
plans.
Using the AS/AD...