In July of 2009-One Month After the Official End of the 2007-2009

question 209

Essay

In July of 2009-one month after the official end of the 2007-2009 recession-the unemployment rate in Detroit topped 17%.This was the highest rate of unemployment of all 49 urban areas with over 1 million residents and was also the largest 1-year increase in unemployment of any major urban center.Using the transmission mechanisms found in this chapter,explain why Detroit-also known as the Motor City and the center of the automobile industry-experienced such a severe and long-lasting decrease in employment during this time period.

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Definitions:

Equilibrium Output

The level of output where the quantity of goods and services produced equals the quantity of goods and services demanded.

Expansionary Gap

A situation in macroeconomics where the actual output in an economy exceeds the potential output, traditionally leading to inflation.

Actual Price Level

The current market prices of goods and services, reflecting the real value of money and the purchasing power of consumers.

Recessionary Gap

The difference between real GDP when the economy is in a recession and the GDP at full employment, indicating underutilized resources.