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    during the great recession, consumer sentiment in the united states declined, leading to a decrease in consumer spending. which of the following factors caused this decrease in consumer sentiment?

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    get during the great recession, consumer sentiment in the united states declined, leading to a decrease in consumer spending. which of the following factors caused this decrease in consumer sentiment? from EN Bilgi.

    24.4 Shifts in Aggregate Demand – Principles of Economics

    24.4 SHIFTS IN AGGREGATE DEMAND

    Learning Objectives

    By the end of this section, you will be able to:

    Explain how imports influence aggregate demand

    Identify ways in which business confidence and consumer confidence can affect aggregate demand

    Explain how government policy can change aggregate demand

    Evaluate why economists disagree on the topic of tax cuts

    As mentioned previously, the components of aggregate demand are consumption spending (C), investment spending (I), government spending (G), and spending on exports (X) minus imports (M). (Read the following Clear It Up feature for explanation of why imports are subtracted from exports and what this means for aggregate demand.) A shift of the AD curve to the right means that at least one of these components increased so that a greater amount of total spending would occur at every price level. A shift of the AD curve to the left means that at least one of these components decreased so that a lesser amount of total spending would occur at every price level. The Keynesian Perspective will discuss the components of aggregate demand and the factors that affect them. Here, the discussion will sketch two broad categories that could cause AD curves to shift: changes in the behavior of consumers or firms and changes in government tax or spending policy.

    Do imports diminish aggregate demand?

    We have seen that the formula for aggregate demand is AD = C + I + G + X – M, where M is the total value of imported goods. Why is there a minus sign in front of imports? Does this mean that more imports will result in a lower level of aggregate demand?

    When an American buys a foreign product, for example, it gets counted along with all the other consumption. So the income generated does not go to American producers, but rather to producers in another country; it would be wrong to count this as part of domestic demand. Therefore, imports added in consumption are subtracted back out in the M term of the equation.

    Because of the way in which the demand equation is written, it is easy to make the mistake of thinking that imports are bad for the economy. Just keep in mind that every negative number in the M term has a corresponding positive number in the C or I or G term, and they always cancel out.

    HOW CHANGES BY CONSUMERS AND FIRMS CAN AFFECT AD

    When consumers feel more confident about the future of the economy, they tend to consume more. If business confidence is high, then firms tend to spend more on investment, believing that the future payoff from that investment will be substantial. Conversely, if consumer or business confidence drops, then consumption and investment spending decline.

    The University of Michigan publishes a survey of consumer confidence and constructs an index of consumer confidence each month. The survey results are then reported at http://www.sca.isr.umich.edu, which break down the change in consumer confidence among different income levels. According to that index, consumer confidence averaged around 90 prior to the Great Recession, and then it fell to below 60 in late 2008, which was the lowest it had been since 1980. Since then, confidence has climbed from a 2011 low of 55.8 back to a level in the low 80s, which is considered close to being considered a healthy state.

    One measure of business confidence is published by the OECD: the “business tendency surveys”. Business opinion survey data are collected for 21 countries on future selling prices and employment, among other elements of the business climate. After sharply declining during the Great Recession, the measure has risen above zero again and is back to long-term averages (the indicator dips below zero when business outlook is weaker than usual). Of course, either of these survey measures is not very precise. They can however, suggest when confidence is rising or falling, as well as when it is relatively high or low compared to the past.

    Because a rise in confidence is associated with higher consumption and investment demand, it will lead to an outward shift in the AD curve, and a move of the equilibrium, from E0 to E1, to a higher quantity of output and a higher price level, as shown in Figure 1 (a).

    Consumer and business confidence often reflect macroeconomic realities; for example, confidence is usually high when the economy is growing briskly and low during a recession. However, economic confidence can sometimes rise or fall for reasons that do not have a close connection to the immediate economy, like a risk of war, election results, foreign policy events, or a pessimistic prediction about the future by a prominent public figure. U.S. presidents, for example, must be careful in their public pronouncements about the economy. If they offer economic pessimism, they risk provoking a decline in confidence that reduces consumption and investment and shifts AD to the left, and in a self-fulfilling prophecy, contributes to causing the recession that the president warned against in the first place. A shift of AD to the left, and the corresponding movement of the equilibrium, from E0 to E1, to a lower quantity of output and a lower price level, is shown in Figure 1 (b).

    Figure 1. Shifts in Aggregate Demand. (a) An increase in consumer confidence or business confidence can shift AD to the right, from AD0 to AD1. When AD shifts to the right, the new equilibrium (E1) will have a higher quantity of output and also a higher price level compared with the original equilibrium (E0). In this example, the new equilibrium (E1) is also closer to potential GDP. An increase in government spending or a cut in taxes that leads to a rise in consumer spending can also shift AD to the right. (b) A decrease in consumer confidence or business confidence can shift AD to the left, from AD0 to AD1. When AD shifts to the left, the new equilibrium (E1) will have a lower quantity of output and also a lower price level compared with the original equilibrium (E0). In this example, the new equilibrium (E1) is also farther below potential GDP. A decrease in government spending or higher taxes that leads to a fall in consumer spending can also shift AD to the left.

    Source : opentextbc.ca

    Economics 5

    Start studying Economics 5-1. Learn vocabulary, terms, and more with flashcards, games, and other study tools.

    Economics 5-1

    Classical economists believe that all prices are adjustable, therefore, in a recession the lack of aggregate demand would result in all prices decreasing (including inputs like wages) which would then increase aggregate supply. Which of the following graphs depicts classical economics long run correction of a recession?

    A B C D

    Click card to see definition 👆

    A

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    Identify whether the following statement is more likely to come from a classical economist or a Keynesian economist.

    "There is no reason to believe that most prices will take more than several months to adjust in either direction."

    Click card to see definition 👆

    Classical

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    1/187 Created by Bella_Gleason

    Terms in this set (187)

    Classical economists believe that all prices are adjustable, therefore, in a recession the lack of aggregate demand would result in all prices decreasing (including inputs like wages) which would then increase aggregate supply. Which of the following graphs depicts classical economics long run correction of a recession?

    A B C D A

    Identify whether the following statement is more likely to come from a classical economist or a Keynesian economist.

    "There is no reason to believe that most prices will take more than several months to adjust in either direction."

    Classical

    The Great Depression ended in:

    June 1938

    The Great Recession began in:

    December 2007

    Classical economists believe that the economy is stable and tends toward full employment because:

    prices are flexible and allow the economy to quickly return to full employment.

    The Great Depression actually consisted of two separate recessions. The "second wave" of the Great Depression began in _________ and lasted for _________.

    May 1937; 14 months

    During the Great Depression, the U.S. aggregate demand curve shifted to the left, in part, because:

    the U.S. government increased taxes.

    If a classical economist were asked which factor is most important to ensuring economic growth, how might he respond?

    "Encouraging savings is crucial."

    Which of the following economic statements would a Keynesian economist tend to support?

    The short run deserves more attention than the long run.

    The Great Recession lasted longer and was deeper than the average recession, in part, because:

    there was a major financial crisis following the collapse of housing prices.

    Which of the following were common to the Great Depression and the Great Recession?

    a. A - In both cases AD declined.

    b. B - In both cases LRAS declined.

    c. C - In both cases SRAS declined.

    d. Both A and B e. Both A and C f. Both B and C

    A - In both cases AD declined.

    If real GDP was $977 billion in 1929, by how much did real GDP decrease at the peak of the Great Depression?

    $261 billion

    Consider these four graphs. Graph ____ depicts the conditions of the Great Recession, and graph _____ depicts the conditions of the Great Depression

    C; B

    When describing how the economy works, classical economists claim that:

    savings is crucial to economic growth.

    What is the difference between unemployment rates during the Great Depression and the Great Recession at their peaks?

    15.6%

    The Great Recession was different from other recessions since World War II in that:

    the overall economy took far longer to recover than the average.

    If real GDP was $977 billion at the start of the Great Depression and $13.16 trillion at the start of the Great Recession, then real GDP was _______ in year 7 of the Great Depression and _______ in year 4 of the Great Recession.

    977 billion; 13.16 trillion

    During the Great Recession, the unemployment rate climbed as high as _________ and remained around 8% _________ months after the recession began

    10%; 60

    An institutional breakdown in U.S. financial markets would tend to cause:

    long-run aggregate supply to decrease

    If you were to ask a Keynesian economist for his perspective on economic stability, what might he say?

    "The economy tends toward instability and cyclical unemployment."

    During the Great Recession, the U.S. long-run aggregate supply curve shifted to the left, in part, because:

    there was an institutional breakdown in financial markets.

    Based on the belief that prices are very flexible, classical economists conclude that:

    government intervention in the economy is unnecessary.

    During the Great Depression, the U.S. aggregate demand curve shifted to the left, in part, because:

    there was a severe decline in stock prices

    As a result of several factors, aggregate demand decreased during the Great Depression. One factor would be:

    a decrease in expected income.

    Classical economists believe that prices are completely flexible, from which they conclude that:

    the economy is self-correcting in response to shocks.

    During the Great Recession, __________ caused long-run aggregate supply to decrease.

    financial market turmoil

    According to Keynesian economists, prices tend to be ______________. As a result, Keynesian economists focus on _____________ changes and aggregate ____________.

    Source : quizlet.com

    Consumer spending and U.S. employment from the 2007–2009 recession through 2022 : Monthly Labor Review: U.S. Bureau of Labor Statistics

    Although employment related to consumer spending declined during the recent recession, consumer-related employment recovered by 2012 and is projected to support job growth through 2022.

    Article October 2014

    Consumer spending and U.S. employment from the 2007–2009 recession through 2022

    In the latest recession, employment supported by U.S. consumer spending declined by an estimated 3.2 million jobs between 2007 and 2010, over a third of total job declines during that time frame. Compared with the overall economy, consumer-related employment demonstrated relative resilience, recovering in 2012. Through 2022, consumer spending is projected to support stable job growth with increasing expenditures on labor-intensive services like health care. However, consumer spending and its related employment are projected to grow slower than in the past and at rates similar to the overall economy.

    For the past several decades, U.S. consumers have been considered an “engine” of economic growth in the United States.1 In 2012 they were responsible for just under 71 percent of U.S. gross domestic product (GDP), almost 8 percentage points higher than in 1960.2 American consumers have also played a prominent role in the global economy, accounting for just over 15 percent of world GDP in 20123 (see figure 1).

    View Chart Data

    When consumers shop, they directly support4 jobs in companies that produce, transport, and sell final goods and services. Consumers also indirectly support jobs that make inputs (intermediates) requisite for final production. More U.S. jobs directly or indirectly relate to consumer spending than to all other sectors of the economy combined. In 2007, which was the business cycle peak prior to the latest economic downturn, 85.1 million nonagricultural wage and salary jobs related to consumer spending; these jobs were 61.5 percent of total nonagricultural wage and salary employment in the United States5(see figure 2). But unlike GDP, the percentage of U.S. jobs tied to consumption has fluctuated within a relatively stable range since the late 1970s because of labor-saving technologies and increased consumption of imports ­(see figure 3).

    View Chart Data

    View Chart Data

    During the “Great Recession,” which took place from late-2007 through mid-2009, the economy steeply contracted and nearly 8.7 million jobs were lost.6 Consumer spending experienced the most severe decline since World War II.7Households cut spending, shed outstanding debt, and increased their rate of personal savings in response to reductions in income, wealth, confidence, and credit access.8

    With persistently high unemployment rates, the weak revival in job growth has been one of the most debated aspects of the recent recession.9 Several structural and cyclical factors have been proposed as causes, including the nature of the financial crisis, dependency of the economy on services, economic and policy uncertainty, extended unemployment insurance, and high long-term unemployment rates.10 Many have also blamed sluggish consumer spending: as Federal Reserve Chairman Ben Bernanke stated in 2011, “Consumer behavior has both reflected and contributed to the slow pace of recovery.”11 Others made stark statements, such as, “Don't expect [U.S.] consumer spending to be the engine of economic growth it once was.”12

    Using an input–output methodology, this article estimates U.S. employment related to each final demand component in the latest recession (2007–2009) and during the recovery years through 2012, with a focus on consumer spending. Though consumer behavior during and after the recession has been documented in various papers,13 the relationship between consumption and employment has not yet been quantified in the literature.14 This article also projects the number and type of U.S. jobs relating to consumer spending in 2022 using the most recent economic and employment projections developed by the Office of Occupational Statistics and Employment Projections at the Bureau of Labor Statistics (BLS).15

    BLS estimates that the number of jobs tied to consumer demand declined by 3.2 million from the 2007 employment peak to 2010, the year of the employment trough. The 3.2 million were over a third of the total 8.7 million jobs lost in that time frame, and most of the consumer-related job losses were concentrated in three industries: manufacturing, professional and business services, and retail trade.16 In contrast, over half of total job losses between 2007 and 2010 occurred in investment-related employment, which is typically more sensitive than consumer-related jobs to the business cycle. The largest annual decline in consumer-related employment occurred in 2009. In 2010, after the recession officially ended, consumer-related employment accounted for the majority of job declines in the entire economy.

    Despite the postrecession decline in consumer-related employment and the historic decline in spending, consumer-related employment demonstrated relative stability both during and after the recession, upheld by gains in two sectors: health care and social assistance,17 and educational services.18 The percentage of jobs in the economy supported by consumers increased (see figure 3) as the share of investment-related employment fell to unprecedented levels. And by 2012, consumer-related employment reached prerecession marks, while overall employment did so in 2014.19 The relative resilience of consumption reflects its stability in comparison with other GDP components during economic slumps.

    Source : www.bls.gov

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