Question

1- Why wouldn’t investment and savings flows at full employment always be equal? 2- Why was President Obama so concerned about the economy at the outset of his presidency? 3- How can you tell if the economy is in equilibrium? How could you estimate the GDP gap?

Answer 1

Answer:

Explained

Explanation:

1)When leakages (taxes, consumer savings, business saving and imports) fail to balance injection (investment, autonomous consumption, government purchases and exports) then the imbalances arises at full employment. There occurs an undesired investment caused due to the undesired inventory. Consequently at full employment the savings and investment flow would not always be equal.

2) As per the reports of Department of Labor, roughly 8.7 million jobs were shed from the period between February 2008 to February 2010, and GDP declined by 5.1%, making the Great Recession the worst since the Great Depression. Unemployment increased in November 2007 from 4.7% to peak at 10% in October 2009. The United States was upset over rising unemployment and a rapidly deteriorating economy; and to overcome it President Obama had undertaken numerous steps in many sectors.

3) The equilibrium real output and the price is calculated when the aggregate demand equals the aggregate supply of economy. Thus the equilibrium is at the intersection AD and  AS of economy. The point is known as equilibrium because; there will be no excess demand and excess supply at the point and price corresponding to the point is know as equilibrium price.