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Using AD/AS analysis, describe and illustrate two cases where economy gets stuck in recession and does not return quickly to its natural level of output.
The first 200 words of this essay...
Using AD/AS analysis, describe and illustrate two cases where economy gets stuck in recession and does not return quickly to its natural level of output.
Economy is fluctuated by the changes in aggregate supply or aggregate demand and it is shocked by the exogenous changes in those curves. Economists call a shock that shifts the demand curve a demand shock and a shock that shifts the supply curve a supply shock (Mankiw, 1999).
In this essay, we will describe how these shocks would push the economy's output away from its natural level and look at how government keeps its output back to the original level as close as possible.
Demand shock
In this essay, we assume in short-run, all prices are fixed. Therefore, the aggregate supply curve (SRAS) is horizontal. Also the level of output is determined by the amounts of capital and labour, so in long-run the AS curve (LRAS) is vertical and the output is at its natural level.
Suppose there is a increase of the real interest rate and this encourages people to save more instead of spending-causes the decrease of aggregate demand and the AD curve shifts inward from AD1
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Review of essay
Rating: 3 star(s)
Response to the question
This essay engages at a good level to this essay. There is awareness that recession can be caused by external factors, or supply and demand shocks. The analysis of what these shocks will do the economy is good, but I don't think that the question fully engages with the task. There isn't enough discussion around long-term recession or slumps, for which the question prompts to discuss. By neglecting this, the essay won't be able to pick up top marks!
Level of analysis
The level of analysis is sound, using diagrams and analysing shifts to display the necessary skills. I particularly liked how each shift and change on the diagram is explained, for example "The shift of AD causes the output decreases from Y1 to Y2". Such simple sentences will gain credit in exams, as it shows a full understanding of the diagrams and what they represent. The theory is all correct, however as mentioned earlier they don't talk about long-term recessions. In my opinion, this question is prompting you to explore why government policies to resurrect the economy are often too slow. This could be done by discussing longevity of supply-side policies such as investment in education or training, or the response of the economy to fiscal policies.
Quality of writing
The essay has a clear structure, giving simple definitions of the terms in the question. I do have a query with the style at times, for example "In this essay, we will describe". This is unnecessary, and isn't a sophisticated style for GCSE level and beyond. You should be trying to move away from first person in formal pieces of writing. This essay shows tendencies of having a good style, for example "suppose there is" and "as a result of this". At times, the grammar is poor and it is awful to start the essay off with "Economy is fluctuated" as it doesn't make sense! This gives the wrong impression from the start, so a quick proof read is vital.
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