A recession may reflect declines in aggregate demand, aggregate supply, or both. Are swings in consumer sentiment characteristic of recessions? Plot a measure of sentiment (FRED code: UMCSENT) and discuss its evolution during the recessions since 1980? Explain why consumer sentiment is an important example of an aggregate demand shock.
Answer to relevant QuestionsHow often is negative supply shocks associated with recessions? Plot on a quarterly basis since 1971 the real price of oil measured as the ratio of the nominal price of oil (FRED code: OILPRICE) to the U.S. Consumer Price ...*According to real business cycle theory, can monetary policy affect equilibrium output in either the short run or the long run? *Suppose a natural disaster reduces the productive capacity of the economy. How would the equilibrium long-run real interest rate be affected? Assuming the central bank maintains its existing inflation target, illustrate the ...*How could you use the aggregate demand-aggregate supply (AD/AS) framework to explain the impact of the financial crisis of 2007-2009 on inflation and output in the economy? The government decides to place limits on the interest rates banks can pay their depositors. Seeing that alternative investments pay higher interest rates, depositors withdraw their funds from banks and place them in bonds. ...
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