Macroeconomics

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Question 1
There are various reasons which triggers the process of recession in an economy such as the stock market crush, natural disasters anticipation like draught, and loss of employment. Intrinsic factors within an economy triggers recession, but the government fiscal policy has been described as the prime factor that triggers economic recession. The tightening of money supply by the Federal Reserve banks causes recession in that, it compel people to hang to the dollar reducing circulation of money. Consequently this leads to a reduction in expenditure and hence low money supply to enhance growth.
Question 2
The decrease of aggregate demand by 600 units from a GDP of 1000 will cause t he demand to settle at 400 units. The low level of demand will consequently cause the fall in the price at the market to settle at $70 from the initial equilibrium price level of $100. The new GDP will be 400 at the new price of $70.
The fall in GDP is as a result of fall in the demand of products in the market which results to a reduction in the price of products. This will have an impact in the level of production as the supply has exceeded demand, thus resulting to reduction of output. The employment in the economy will adversely affected as a result of lowered production forcing the labor input to be lowered and hence an increase in unemployment.
The reason by which an economy can stay for long in the state of recession is due the Federal Reserve Bank failure to increase money supply in the economy. The fiscal policy is concerned with stabilizing the business cycle through the counteraction of unemployment and inflation which is created by shifts of business instability.
Question 3
The economic policies con...