01: For this question consider the following table (14 points): GDP Investment N
ID: 1108525 • Letter: 0
Question
01: For this question consider the following table (14 points): GDP Investment Net Exports Government Expenditure 120 3,600 3,700 3,800 3,900 4,000 3,220 3,310 3,400 3,490 3,580 240 240 240 240 240 120 120 120 120 40 40 40 40 40 a) Assume this economy hits a recession which leads to an increase in unemployment. Briefly explain the effects on Aggregate Consumption and GDP In a classic piece of comedy Dave Chappelle (dressed as a fake anchorman) announces that Congress approved $1 Billion for African-Americans as a reparation payment for slavery. Briefly explain the effects on Aggregate Consumption and GDP (You don't need to know or watch the video in order to answer the question, in case you want to, URL: http://www.dailymotion.com/video/x2pveof b)Explanation / Answer
Answer (a)
Normally recession means a drop in real GDP. If there is consecutive drop in GDP or the growth rate in GDP is negative, there is recession. The recession has severe impacts on Real GDP, Income, Employment , Manufacturing industries, and retail sales. This amounts to say that there is fall in income resulting into fall in consumption. As there would be fall in income and consumption, there would be fall in retail sales, and there would be less demand for products. The manufacturing sector is very important sector to be hit by recession.
Answer (b)
In the classic video of Dave Chappelle one observes an euphoria of hapiness of rising expenditure and its impact on consumption leading to more growth of economic activities. Naturally, if there is recession which is due to fall in aggregate demand, the government resorts to take welfare programs or increases government expenditure. Such grants or expenditure boosts household consumtion that raises the GDP. Hence, the federal government approving $1billion for reparation of African- American shall definitely boost the aggregate consumption leading to rise in aggregate demand. When, there is rise in aggregate demand, there would be rise in GDP. This would lead to more income generation and employment creation.
The table given above reflects how the growth in consumption leads to rise in GDP. But, after recession, though there is rise in consumtion, this is not translated to rise in GDP.
Hence, the government tries to maintain a balance of consumption, investment, government expenditure, and net export.
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