Nama : Aisyah Latifunisa
NIM : 7111421156
Subject : Macroeconomics
“I hereby declare that I am ready to work on the exam questions honestly. I am willing
to accept sanctions if I violate this statement”
1. A recession occurs When an economic growth in a country in two consecutive quarters
is negative. When a recession occurs, aggregate demand decreases. This is because
Automatic stabilizers in the government's budget allow spending to rise or taxes to fall
automatically in a recession, which helps cushion the drop in aggregate demand during
a recession. The economy begins at a long-term equilibrium at point A. Decrease in
aggregate demand that may be caused by a decrease in money turnover, moving the
economy to point B so that output is at a natural point. As prices fall the economy
gradually comes out of recession, moving from B to C.
2. Inflation is the sustained increase in the general price level over a given period of time.
Higher government spending will lead to demand-pull inflation. Assuming other
determinants of AD remain constant, an increase in government spending will increase
the level of AD in the economy. This means that the AD curve will shift to the
right. Government spending will lead to inflation due to the multiplier effect. The
multiplier effect occurs when an initial change in an injection into the circular flow of
income has a greater final impact on national income. Government spending is an
injection into the circular flow of income.
NIM : 7111421156
Subject : Macroeconomics
“I hereby declare that I am ready to work on the exam questions honestly. I am willing
to accept sanctions if I violate this statement”
1. A recession occurs When an economic growth in a country in two consecutive quarters
is negative. When a recession occurs, aggregate demand decreases. This is because
Automatic stabilizers in the government's budget allow spending to rise or taxes to fall
automatically in a recession, which helps cushion the drop in aggregate demand during
a recession. The economy begins at a long-term equilibrium at point A. Decrease in
aggregate demand that may be caused by a decrease in money turnover, moving the
economy to point B so that output is at a natural point. As prices fall the economy
gradually comes out of recession, moving from B to C.
2. Inflation is the sustained increase in the general price level over a given period of time.
Higher government spending will lead to demand-pull inflation. Assuming other
determinants of AD remain constant, an increase in government spending will increase
the level of AD in the economy. This means that the AD curve will shift to the
right. Government spending will lead to inflation due to the multiplier effect. The
multiplier effect occurs when an initial change in an injection into the circular flow of
income has a greater final impact on national income. Government spending is an
injection into the circular flow of income.
