Part 1: Define what is happening in the economy when a country is in an expansionary mode, a recession, and a depression. Which economic indicators do we monitor to ascertain where the economy is in the business cycle.
Part 2: As an economic advisor to the president, suggest 4 ways to increase aggregate demand using the following economic concepts. Make sure you answer in the context of the equation for GDP, which is AD (Real GDP) = C (Consumption) + I (Investment) + G (Government Spending) + (E (Exports) - IM (Imports). All creative ideas are welcome!
- The marginal propensity to consume
- Impact of marginal propensity to the save on investment.
- Fiscal policy, which focuses on policies related to government spending and taxation
- The multiplier
What is the difference between supply-side and demand-side economics? How do the above concepts fit into these definitions? Which do you agree with most as a solution to stimulating growth, and why?