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Analyze recent major macroeconomic problem(s) experienced by the United States. Describe the macroeconomic phenomena and relate...

Analyze recent major macroeconomic problem(s) experienced by the United States. Describe the macroeconomic phenomena and relate it to theories and concepts of macroeconomics. Support your arguments with examples, diagrams, and equations. Finally, provide policy (monetary and fiscal) solution(s) to the problem(s) you choose to discuss

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Expert Solution

Recent major macroeconomic problem experienced by United States

-> Recession due to the virus (Businesses halt, house rent crisis, unemployment all leading to a recession)

Description as follows

1. AD curve is shown as follows (reasons of shifting are also mentioned)

2. AS curve looks like (reasons of shifting are also mentioned)

3. At equillibrium (100% employment)

4. During recession AD moves to left, (i.e. AD decreases) as shown below

5. This is the problem.

Employment very low. Output very low. Thus recession in the economy. To revive the economy back, AD should move to the right. So, for this reason, monetary and fiscal policy can be used.

a. Expansionary fiscal policy (Increase in government spending/Decrease in taxes)

b. Expansionary monetary policy (Increase in liquidity using interest rate, reserve requirement and open market operations)

Both the expansionary policy may increase AD and thus the economy can come back to normal stage of employment and output.

Rahul Sunny answered 2 years ago
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