| mrstickball said: I'm wondering if Akvod even knows why a recession occurs. He seems to think he knows how to solve them (government spending), but it seems he hasn't discussed why they even occur in the first place. |
I've provided a few reasons. But there are two ways, demand shock, and supply shock.
The most common way a supply shock can occur is when an input becomes more expensive. This explains how the SRAS curve eventually shifts leftwards and causes inflation, IF we engage in inflationary policies beyond the LRAS (wages go up). The biggest example is the oil crisis decades ago.
With supply shock, we face stagflation, and our econ class didn't really focus much on it, only concluding that you either have to reduce the inflation at the cost of productivity, or increase productivity at the cost of inflation.
Demand shock can occur in a lot more ways. It can occur due to loss of consumer confidence, which itself is caused by a shit load of things. It can be caused by the loss of wealth/assets (eg a stock market crash, or a fall in real estate values), it can also be caused by a lowering of investment, say, when companies borrow money and can't pay them back, freezing credit.
