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Signs of a recession

The image shows a “Foreclosure” sign in the foreground and the tops of a couple of houses in the background.
Home foreclosures were just one of the many signs and symptoms of the recent Great Recession. During that time, many businesses closed and many people lost their jobs. (Credit: modification of work by Taber Andrew Bain/Flickr Creative Commons)

The great recession

The Great Recession of 2008–2009 hit the U.S. economy hard. According to the Bureau of Labor Statistics (BLS), the number of unemployed Americans rose from 6.8 million in May 2007 to 15.4 million in October 2009. During that time, the U.S. Census Bureau estimated that approximately 170,000 small businesses closed. Mass layoffs peaked in February 2009 when 326,392 workers were given notice. U.S. productivity and output fell as well. Job losses, declining home values, declining incomes, and uncertainty about the future caused consumption expenditures to decrease. According to the BLS, household spending dropped by 7.8%.

Home foreclosures and the meltdown in U.S. financial markets called for immediate action by Congress, the President, and the Federal Reserve Bank. For example, programs such as the American Restoration and Recovery Act were implemented to help millions of people by providing tax credits for homebuyers, paying “cash for clunkers,” and extending unemployment benefits. From cutting back on spending, filing for unemployment, and losing homes, millions of people were affected by the recession. And while the United States is now on the path to recovery, the impact will be felt for many years to come.

What caused this recession and what prevented the economy from spiraling further into another depression? Policymakers looked to the lessons learned from the Great Depression of the 1930s and to the models developed by John Maynard Keynes to analyze the causes and find solutions to the country’s economic woes. The Keynesian perspective is the subject of this chapter.

Introduction to the keynesian perspective

In this chapter, you will learn about:

  • Aggregate Demand in Keynesian Analysis
  • The Building Blocks of Keynesian Analysis
  • The Phillips Curve
  • The Keynesian Perspective on Market Forces

We have learned that the level of economic activity, for example output, employment, and spending, tends to grow over time. In The Keynesian Perspective we learned the reasons for this trend. The Macroeconomic Perspective pointed out that the economy tends to cycle around the long-run trend. In other words, the economy does not always grow at its average growth rate. Sometimes economic activity grows at the trend rate, sometimes it grows more than the trend, sometimes it grows less than the trend, and sometimes it actually declines. You can see this cyclical behavior in [link] .

U.s. gross domestic product, percent changes 1930–2014

The line graph shows how GDP percentages have fluctuated since 1930 with the highest percentage in the early 1940s and the lowest percentage in the early 1930s (closely followed by the mid 1940s).
The chart tracks the percent change in GDP since 1930. The magnitude of both recessions and peaks was quite large between 1930 and 1945. (Source: Bureau of Economic Analysis, “National Economic Accounts”)

This empirical reality raises two important questions: How can we explain the cycles, and to what extent can they be moderated? This chapter (on the Keynesian perspective) and The Neoclassical Perspective explore those questions from two different points of view, building on what we learned in The Aggregate Demand/Aggregate Supply Model .

Questions & Answers

how to identify a perfect market graph
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Charles Reply
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Charles
macroeconomics,microeconomics,positive economics and negative economics
Gladys
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Gladys
process of production
Mutia
Basically factors of production are four (4) namely: 1. Entrepreneur 2. Capital 3. Labour and; 4. Land but there has been a new argument to include an addition one to the the numbers to 5 which is "Technology"
Elisha
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market refers to the interaction of the processes of buying and selling of commodities between the buyer and the seller.
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Using revenue
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Odirile Reply
price elasticity of demand is the degree of responsiveness of a quantity demanded to the change in price of the commodity in question.
Gladys Reply
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Prince
Elasticity means change in demand with the change in price. It is elastic if the demand changes with the price change whereas it is inelastic if the demand is not affected due to change in price
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it helps to make the correct choice
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needs are things that we basically can't live without wants are just luxury things
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needs are things without them we can't live but want are things without we can live
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it's a process in which we give or receiving methodical instructions
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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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