2. Dr. Strangelove gave a speech in PSU recently during which he claimed: \"Firm

Question

2. Dr. Strangelove gave a speech in PSU recently during which he claimed: "Firms and other investors should treat recession a good thing because whenever there is a recession, there will be an expansion and thus they can simply buy low and sell high...Even the government should do nothing during a recession because of the following three reasons: (1) the cyclical unemployment is temporal and will eventually go back to zero; (2) the price level will go down during a recession which means a value increase of local currency, and (3) in the long run the expansion and the recession simply break even and thus there is no impact on the long run growth." Use the empirical facts and the impacts of business cycle we discussed in class to argue with Dr. Strangelove.

Explanation / Answer

Recession which lasts for a very short term can actually be good for economy, It corrects all the excesses of financial system and makes capitalism work, but a cyclical recession that last for decade can literally be terrible for any economy,

The present crisis of 2008 is still not gone, US GDP growth is still hovering around 1% PA, similarly most of the developing world has slowed down significantly and we have seen demand falling at record levels around the world.

Investment cycle is not picking up even after 10 years, This is very serious when crisis from one part of the world spreads to other and the effects of negitivity is spread across all continents.

US unemployment numbers look better only because millions of people have just choosen part-time jobs or just given up looking for work, Further unemployment programmes today have strict eligibility rules which will stop people from qualifing for benefits.

1) cyclical unemployment or recession for that matter cant be for decades, It can be for some short period of time.

2) Prices going down is a great thing, but prices going down so far that it destroyed entire financial system is very disastrous, The entire cycle is broken down now and 2 terms of US president to solve the crisis did not have yielding results.

3) After decade long economic distress and Looming EU problems we cannot say for sure, when the economy will recover, If even it recovers the scars are too deep. The best talents that came out of university in 2007 or 2008 are still underemployed or unemployed. Its after 8 years of waiting, Skills will be lost and growth cannot be generated with those resources anymore.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.