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The Impact of Recession on Aggregate Demand and Aggregate Supply

The goods that customers are willing and able to acquire at a given price fluctuate on a regular basis during a given time period, representing shifting aggregate demand. In contrast, aggregate supply refers to the average quantity of products and services that producers are ready and prepared to deliver to the market at a given price. During the recession that lasted from 2007 until the middle of 2009, the economy suffered a sharp drop, and nearly 8.7 million jobs were destroyed. The unemployment rate in December 2007 was standing at 5.0%, which was never the case in the previous 30 months. At the end of the recession period, it was 9.5%. Such a scenario had only been witnessed from September 1982 up to June 1983. It was the most severe decrease in consumer expenditure since World War II. The households reduced their spending, with outstanding debts and rise in the individual savings in response to the decreased income, confidence, access to the credit as well as the wealth.

The Shift in Demand and Supply during the Recession

The shift in the demand and supply in the market during the economic recession of the 2007-2009 timespan has led to a substantial improvement in the economy. The GDP of the nation started to gain momentum due to the control in the quantity of goods and services being supplied into the market together with the regulated demand for the products that the manufacturers brought to the scene. Because of the recent economic depression, there has been a drop in the expenditure from approximately $52,203 in the year 2007 to $48,109 in the year 2010. It is at this point that spending was reduced in all the major sectors of the economy except the health care sector.

Monetary and Fiscal Policies during the Recession

What monetary policies and fiscal policies were implemented during the recession?

The monetary policy utilizes the changes in the quantity of money to interfere with the interest rates; as a result, this aspect affects the level of general spending. The practice of products and services helped in stabilizing the price of goods and services offered in the market, thus containing the inflation rates that had invaded the world markets before the great recession. Most of the economies had challenges in restoring the entire sectors that reflect the limited employment opportunities during the period, as shown in the model. Implementation of strict fiscal and monetary policies was essential in protecting the United States from the unfavorable economic performance. The regulations would be substantial in cushioning it from the adverse impacts of poor performance of the global market.

Impact on U.S. Trade Relations and the Dollar Exchange Rate

How did the recession affect U.S. trade relations and the U.S. dollar exchange rate?

The best strategy for maintaining the stability of the U.S. dollar is improving the relationship between U.S. trade and other world's markets. The dollar started to gain its value and exchange rates after the occurrence of the Great Depression in the United States. Two provisions have promoted investment in the year 2008 by raising the limits on expensing the cost of financing and elevate depreciations on investments. In the case of recession, the government has to reduce the rates of interests they impose on bank loans to promote investment or increase expenditure to boost consumption and economic growth and development. The fiscal and monetary policies affect investment, consumption, net export, and government expenditure in the long run. The rise in any of the aspects mentioned above enhances economic growth.

May 17, 2023

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