Go to the BEA website wwwbeagov On the left tab under Public

Go to the BEA website www.bea.gov. On the left tab under Publications, go to the Interactive Data Tables. Select National Income and Product Accounts. From Table 1.1.6 and 1.1.7 examine all four components of GDP (C, I, G, and Xn). <?xml:namespace prefix = o ns = \"urn:schemas-microsoft-com:office:office\" />

Which of these four components of AD declined the most during the 2007 and 2009 recession? Do you think an increase in government\'s spending (G) can boost the Aggregate Demand (AD) in a recession?

Analyze why the economy may operate below full-employment GDP in the short run. How can the multiplier have a negative effect? What is the relationship between the multiplier and the marginal propensities? Explain.

Were you concerned by certain types of government spending in response to the recession, even if the goal was to boost aggregate demand?

Solution

Percentage Change 2007 2008 2009 Gross domestic product 2.9 2.2 0.9 Personal consumption expenditures 2.7 3.3 0.1 Gross private domestic investment 1.9 1.1 -1.1 Net exports of goods and services --- --- --- Government consumption expenditures and gross investment 4.8 4.9 -0.6 [Billions of chained (2005) dollars] 2007 2008 2009 Gross domestic product 13206.4 13161.9 12757.9 Personal consumption expenditures 9262.9 9211.7 9032.6 Gross private domestic investment 2159.5 1939.8 1458.1 Net exports of goods and services -648.8 -494.8 -355.2 Government consumption expenditures and gross investment 2434.2 2497.4 2589.4 Which of these four components of AD declined the most during the 2007 and 2009 recession? Do you think an increase in government\'s spending (G) can boost the Aggregate Demand (AD) in a recession? Ans) Percentage Change 2007 2008 2009 Gross domestic product 2.9 2.2 0.9 Personal consumption expenditures 2.7 3.3 0.1 Gross private domestic investment 1.9 1.1