Consider a recession: production has declined, incomes on average are falling, and unemployment is rising.
a. If the recession were triggered by a significant drop in aggregate demand (AD), what kind of policies might you prescribe to pull the economy out of recession (fiscal and/or monetary)? Explain.
b. Would you alter your previous policy prescription in any way if the recession were created by a negative shock to short run aggregate supply (SRAS) in the economy? Explain.