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Found in: Page 246
Author(s)Paul Krugman, Robin Wells
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Describe who gets hurt in a recession, and how.
Both the employees and firms get hurt by the recession. Employees lose their jobs and are forced to a lower standard of living while the firms undergo abnormal profits.
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TABLE OF CONTENTS :
TABLE OF CONTENTS
Step 1: Employee loss by the recession
During a recession, the unemployment rate rises high, and jobs are scarce. It diminishes the standard of living for many individuals, and the ratio of people living below the poverty line increases. Thus, the labor market sees severe downfall and losses.
Step 2: Damage to the firms due to the recession
Talking about the firms, as the aggregate demand falls during a recession, the firms tend to reduce the labor and the output. It reduces the firms’ profit. Many small-scale businesses are even forced to shut down.
Most popular questions for Economics Textbooks
In 2008, problems in the financial sector led to a drying up of credit around the country: home-buyers were unable to get mortgages, students were unable to get student loans, car-buyers were unable to get car loans, and so on.
- Explain how the drying up of credit can lead to compounding effects throughout the economy and result in an economic slump.
- If you believe the economy is self-regulating, what would you advocate that policymakers do?
- If you believe in Keynesian economics, what would you advocate that policymakers do?
Which of the following reflect comparative advantage, and which reflect macroeconomic forces?
- Thanks to the development of huge oil sands in the province of Alberta, Canada has become a BUSINESS CASE exporter of oil and an importer of manufactured goods.
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- Since 2002, Germany has been running huge trade surpluses, exporting much more than it imports.
- The United States, which had roughly balanced trade in the early 1990s, began running large trade deficits later in the decade, as the technology boom took off.
Which of these sound like inflation, which sound like deflation, and which are ambiguous?
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- Gas prices have doubled, food prices are up 50%, and most services seem to be up 5% or 10%.
- Gas prices haven’t changed, food prices are way down, and services have gotten cheaper, too.
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