Economics Assignment Example | Topics and Well Written Essays - 1250 words

Economics - Assignment ExampleWhen firms drop off less money on expansion, they be infusing fewer funds into the economy which departs to slow economic growth. caudex market crash causes job losses and this highly impacts the economy. During recession firms tend to cut operation cost by firing workers. With less money to spend consumers will not afford durable and sumptuousness items. Hence, unemployment in the long run negatively impact the consumer durable and real estate sectors of economy since it lead to hap in prices in commercial and real estate sectors. Additionally, when investors money is lost as result of stock market crash, they tend to spend less. This in essence leads to low consumer spending which negatively affects the economy.Immediately following the attack on the US on 11 Sept 2001, the stock markets plunged and many another(prenominal) observers expected a recession in the US (and possibly elsewhere). Using the AD-AS model, explain their prediction.There are reasons that led many observers to predict a recession in the US when the stock markets plunged. Stocks are pieces of monomania in a firm and thus the stock markets are indicator of shareholders authority in the hereafter earnings of these firms. Corporate earnings depend on the stability of countrys economic stand and therefore stock markets reflect how a country is economically stable. Their crash reflects a loss of confidence in the economy and if not restored it leads to recession. This due to the fact that the stock markets crash lead to a fall in aggregate demand (AD) (demand side shock) as a result of less wealth for consumers. In addition, it implies less financing for new projects, since trading of stocks is one way that firms raise funds required to expand.They withal predicted a recession in US economy because declining stock markets can kick-start a rise in oil prices which would increase the cost of manufacturing and this in