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Ranamae Zamora Economics Assignment: Stimulating an economy in recession March 27, 2007 1. How might a government attempt to stimulate an economy which is in recession? Recession occurs when the economy experiences two consecutive quarters of falling Gross Domestic Product (GDP). GDP is the accounted money value of the goods and services produced in an economy. Recession shows how economic activity slows down and falls over a period in time. The decrease in GDP is shown in figure I where the real GDP trend goes below the potential real GDP. During this period there is rising unemployment, decreased output, decreased consumption and interest rates, and deflation (decrease in price level). A decrease in the components of aggregate demand (AD) such as consumption, investment and government spending as well as an increase in the components of aggregate supply (AS) such as the price of labor and price of inputs would be some of the...

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