Go to the BEA website www.bea.gov. On the left tab under Publications, go to the Interactive Data Tables. Select National Income and Product Accounts. From Table 1.1.6 and 1.1.7 examine all four components of GDP (C, I, G, and Xn). Which of these four components of AD declined the most during the 2007 and 2009 recession? Do you think an increase in government’s spending (G) can boost the Aggregate Demand (AD) in a recession? Analyze why the economy may operate below full-employment GDP in the short run. How can the multiplier have a negative effect? What is the relationship between the multiplier and the marginal propensities? Explain.
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