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The Present Global Recession - Assignment Example

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This paper "The Present Global Recession" discusses the present global recession and how it was a failure on the part of the government and the Federal Reserve is not being able to prevent it. It is imperative to first understand the phenomenon of any recession…
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The Present Global Recession
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Download file to see previous pages In fact it is debatable whether the turmoil would have reached its epic present-day proportions if the demand stimulation targeting policies which in essence were affected through high leverage proportions were not introduced and the recession was allowed to do its bit. Thus, it emerges that the government and the Federal Reserve have failed in playing a role that could prevent the crisis. However, the failure is even more strongly reflected in certain policies that targeted to recover the economy from the crisis but was evidently misdirected since the economy, understood to have faced a crisis since 2007 is still on a downward trajectory, and the persistent spread of the crisis is yet to be checked anywhere. The remainder of this section shall explain the phenomenon of a recession in theoretical terms to facilitate enhanced perception of the Government and the Federal Reserve’s roles in the ongoing crisis.

To understand the present global recession and how it was a failure on the part of the government and the Federal Reserve in not being able to prevent it, it is imperative to first understand the phenomenon of any recession. According to Keynesian effective demand framework, a fall in real aggregate national income is triggered by a reduction in the effective aggregate demand (AD) which is composed of planned real aggregate consumption expenditure (C), a function of real aggregate national income itself, planned real aggregate investment expenditure (I), a function of the rate of returns on investment (r), Government Expenditure (G) which is usually taken to be autonomously determined and finally net export demand (defined as the difference between export demand and import demand, i.e., X – M). Now, in the Keynesian framework, there is the sufficiently excess capacity to ensure prices and wages are sticky in the short run and thus, a fall in aggregate demands leads to a fall in output.  ...Download file to see next pages Read More
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