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    Effect of an event on the U.S. economy

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    Give an example of an event or incident that has taken place in the U.S. economy which has a major economic impact--be specific, e.g., 9/11 attack, natural disaster, rise or fall in oil prices due to OPEC policies, consumer optimism or pessimism about an expected economic expansion or downturn, increase in government spending on healthcare, tightening of the legal and institutional environment, and so forth. What effect would this event have on AD or AS, other things being constant? What would be the resulting effect on equilibrium price level? Explain. What will be the effect of the different tools of fiscal policy to stabilize the economy? Give an example of a built-in stabilizer and explain how it would work to reduce this rise or fall in the level of AD.

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    Solution Preview

    You can cite the recent Great Recession of 2008 to 2010 as the event that occurred in the US and affected negatively the following companies: Tiffany (TIF), Apple, Disney, General Motors, Ford, Chrysler, insurance companies, investment firms and banks.

    Effect on AD and AS and the Great Recession:

    The Great Recession resulted to reduction in output of companies in the US and were on the verge of collapse. The immediate impact was displacement of workers. Without jobs, people found out that they cannot afford their daily needs. The ...

    Solution Summary

    The Great Recession has been traced to have impacted the U.S. economy in terms of equilibrium price level and fiscal policy. The role of bailout was also mentioned in the discussion.