Economists agree that increasing aggregate demand is the most expedient way to get the country out of a recession.
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. All creative ideas are welcome!
- The marginal propensity to consume
- Return on investment and the interest rate
- Fiscal policy, including 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?