PART A: The Great Recession and the AD/AS Model
The AD/AS Model explains business cycles. A decline in Aggregate Demand (AD) and/or a decline in Aggregate Supply (AS) will result in a recession (a recession is a decline in real GDP for at least two consecutive quarters). An increase in AD and/or a decrease in AS will cause inflation (inflation is an increase in the general price level).
Using the AD/AS model, explain the reasons for the Great Recession. What factors (the ADorthe AS factors) triggered the recession in 2008? How did the collapse of the real estate market affect these components? You can use your findings from the bea table 1.1.1 for 2008-09.
PART B: The Covid-19 Recession and the AD/AS Model
The US economy (as well as other countries around the world) entered another recession almost 12 years after the Great Recession due to Covid-19. Please first read the following articles about the Covid-19 economy. Using the AD/AS Model, explain the shifts in the AD and AS. What are the causes of the Covid-19 recession?
In each part, please use just the AD/AS Model and their components in your answers (Remember that the AD components are C, I, G, (X-M) and the AS components are mainly resources, productivity, and technology). We will cover the real estate market crash and the financial sector later in the semester.