Question

Using the model of Aggregate Demand and Aggregate Supply as a model, and looking at the section of the chapter called the Recession of 2008 - 2009, discuss what you think caused the recession of 2008-2009. Where you think based on the models of Ag Demand and Ag Supply we are at this time in the recovery?

Are we done with the down-swing of aggregate demand? Has short run aggregate supply shifted back to the right enough to cause us to be a full employment yet? What other considerations come to mind about the process?

Answer 1

Answer)

Introduction;

The Recession of 2008-2009 is mostly effect the western and European region. It downgrades the economics growth globally. As above are the frontier in the global economy. The major cause for the downgrade of the economy is subprime crisis which is basically the supply of loan to the poor credit histories. This will results to the increase in defaulters.

Aggregate Demand and Aggregate Supply:

The aggregate demand and aggregate supply model is the Keynesian model of business cycle. It illustrate the average demand and supply of the economy and at the when these to intersect each other that is the equilibrium point of the economy.  

Subprime loan is the major cause;

Actually according to the above, their is lending of loan especially in the real state sector with weak credit strength. This will leads to asses the distress value of the investment low which enforce the aggregate supply to shift rightward and make the overproduction in the economy. Due to bad credit strength, their was increase in defaulter as they are not able to repay the amount hence stuck in the debt trap. Hence their is a situation of over supply in the economy and people have no money in hand to raise demand hence recession take place,

According to the aggregate demand and aggregate supply model we are in a phase of recovery as their are indications of upward shift in aggregate demand which means people in the economy are have money in their hand. But we can say it as a recovery phase as the destortion that economy face at the recession and their consequences has done some sever damage to the global economy which will be recover gradually, Hence recover phase takes it time to undo the most effect that effect the economy due to recession in 2008-09.

We are not fully done with the down swing of aggregate demand. At the macro level globally increase in aggregate demand but we have to consider the micro part of the economy also in which some of the region of economy has still the effect of recession. As full employment is yet to cherish. Because we are basically considering the western and european region where the recession take place, At present Brexit is seems as the negative externalties to the economy of the europe.
The brexit effect the internation relation of the europe and ressist the free flow of the supply which creates oversupply and wastage of resources at the production region as it is unable to transmit.