ABSTRACT
What makes an economy experience GDP expansion or contraction, high or low employment, and good or bad business conditions? These questions have been very much in the forefront of discussion in the United States and many other countries since the financial crisis of 2007-8, the ensuing recession, widely known as the Great Recession, and the slow recovery that followed. In a sophisticated contemporary economy such as that in the United States, a decline in demand for goods and services by consumers and businesses generally leads to recessionary conditions and higher unemployment. In Chapter 15 we discuss the events of the financial crisis and its aftermath in more detail. But before getting into these specifics, we need to develop a general theory of how the demand for goods and services varies over time and how this affects economic conditions.
