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A number macroeconomic variables decline during recessions. One of these variables is the GDP. a) What other variables, besides real GDP, tend to decline during recessions? Given the definition of real GDP and its components, explain the declines in these economic variables which are to be expected.b) Empirical studies indicate that the long-run trend in real GDP of the USA has an upward trend. How is this possible given business cycles and macroeconomic fluctuations? What factors explain the upward trend in spite of the cycles?Additional Requirements Level of Detail: Show all work
Besides GDP, during recessions, income, profits and investment declines. The price level of goods and services declines during recessions. The aggregate demand and supply also declines and so does consumer spending and levels of employment. During a recession, the price levels of goods are lower than that expected. This prompts supply to decline since the profits are low. Thus the aggregate supply goes down triggering a decline in employment levels. This in turn, makes consumers cautious spenders and they tend to save rather than spend resulting in decline in the aggregate demand. Thus Consumption…

penditure is less on goods and services and even on housing. Simultaneously, business investment reduces since the returns are not profitable. Government spending on factors such as defense and is more when the economy is progressive and declines in times of recession. Finally the net exports tend to decline. This is because due to less production in the economy the imports tend to exceed the exports.



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