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Economics commentary

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Economics Commentary - Global recession The global economy seems to go into a global recession. A recession is when there is two consecutive quarters of decline in real GDP. There are many factors which effect the global recession, like interest rates, monitory policy, investment, unemployment and economic growth. Interest rate is one of the factors that are affected and effecting the global recession. This is because "that the Fed is forced to raise interest rates". With this rising interest rates, there are many things which get affected, like the business sector and a fair amount of consumption expenditure by the household sector (mostly durable goods; these are tangible goods that tend to last for more than a year) because most of their spending is borrowed from banks. ...read more.


Another factor which affects the aggregate demand curve is the fiscal policy, which is a demand side policy. This is when the government plays its role to control the economy. Fiscal policy is an instrument of demand management which seeks to control the level of economic activity in an economy through the control of taxation and government expenditure. The government "has to consider cutting government expenditure as their tax incomes may decline substantially", this shows that the government expenditure is falling because the income from tax has fallen due to decrease in consumption and expenditure. This will lead to a decrease in aggregate demand because the government is one of the main consumers. Another factor of the demand side policy is the monitory policy. ...read more.


Another reaction of this global slowdown is unemployment. Unemployment is present in the economy when there are workers who are able and willing to work but who do not have jobs. There are many costs of unemployment, because it affects the human being and the people around him; as his/her standard of living falls, loss of self-esteem, loss of skills, marriage break-up, higher crime rate and the opportunity cost of the goods and service which could be produced if these people were employed. The global recession is correspondent to unemployment by "the demand-deficient (cyclical) unemployment". This is when there is a fall in aggregate demand of all goods and services and hence for labour. From the graph we can se that AD1 shifts inwards to AD2., but from the Keynesians point of view, wages will not go down as they are "sticky downwards" and therefore the labour market does not clear which results in demand deficient unemployment of "y - x" ...read more.

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