(BQ) Part 2 book "Macroeconomics - Principles, applications, and tools" has contents: Aggregate demand and aggregate supply, fiscal policy, investment and financial markets, money and the banking system, the federal reserve and monetary policy, macroeconomic policy debates, international trade and public policy,.and other contents. | Find more at Aggregate Demand and Aggregate Supply CHAPTER 9 As we explained in previous chapters, recessions occur when output fails to grow and unemployment rises. But why do recessions occur? And how do economies recover from these recessions? In a sense, recessions are massive failures in economic coordination. For example, during the Great Depression in the 1930s, nearly one-fourth of the . labor force was unemployed. Unemployed workers could not afford to buy goods and services. Factories that manufactured those goods and services had to be shut down because there was little or no demand. As these factories closed, even more workers became unemployed, fueling additional factory shutdowns. This vicious cycle caused the . economy to spiral downward. This failure of coordination is not just a historical phenomenon. In December 2007 the economy also entered a very steep downturn—although not nearly as severe as the Great Depression. How could the destructive chain of events have been halted? Equally important is how economies can recover from recessions. The . economy was very slow to recover from the Great Depression and did not truly reach full employment until World War II. And, despite active government intervention, the recovery from the 2007 recession was also painfully slow. LEARNING OBJECTIVES • Explain the role sticky wages and prices play in economic fluctuations. • List the determinants of aggregate demand. • Distinguish between the short-run and long-run aggregate supply curves. • Describe the adjustment process back to full employment. MyEconLab MyEconLab helps you master each objective and study more efficiently. 185 Find more at 186 e C H A P T E R 9 • A G GREGA T E D EM A ND AND AGGREGATE SUPPLY conomies do not always operate at full employment, nor do they always grow smoothly. At times, real GDP grows below its potential or falls steeply, as it did in the
