General Trends in the US Economy during the Great Recession
Aggregate Demand/Aggregate Supply Equilibrium Change
The great recession in 2008 occurred due to the failure of the Federal Reserve to bail out many financial institutions that had issued mortgages to investors. The financial institutions made significant losses, making it hard for them to continue lending funds to the public. Decreased supply of loanable funds adversely affected investment in the country. The supply of loanable funds and investment fell as construction investment collapsed (Bekaert, Engstrom, & Ermolov, 2020). The decrease in investment significantly lowered employment levels, leading to decreased employment levels. Low employment levels adversely affected disposable incomes, lowering the demand for US exports. The aggregate demand decreased with decreased demand for exports, as shown in the graph below.
In the graph above, the Great Recession saw the aggregate demand shift inwards from 2007 to 2008. Decreased aggregate demand created fewer incentives for the economy’s supply side, leading to its shift from LRAS2007 to LRAS2008. The contractionary economic shifts led to a decrease in the real GDP from Y* to Y**, as shown in the graph above. The aggregate demand and aggregate supply curves shifted the equilibrium from point A to point B.
Aggregate Demand and Gross Domestic Product
During the Great Recession in 2008, decreased aggregate demand adversely affected employment levels, setting the foundation for a decreased gross domestic product (GDP). In the quest to protect the gross domestic product, the government increased its expenditure and the money supply, resulting in a smaller decrease in employment and real gross domestic product (Cashin et al., 2018). The decrease in the gross domestic product is shown in the graph from Y* to Y** as it decreases with a shift of the aggregate demand curve. Thus, one can accurately assert that the aggregate demand positively correlates with the gross domestic product.
References
Bekaert, G., Engstrom, E., & Ermolov, A. (2020). Aggregate demand and aggregate supply effects of COVID-19: A real-time analysis. Available at SSRN 3611399.
Cashin, D., Lenney, J., Lutz, B., & Peterman, W. (2018). Fiscal policy and aggregate demand in the USA before, during, and following the Great Recession. International Tax and Public Finance, 25(6), 1519-1558.
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Question 
In your initial post, draw or find an example of an aggregate demand and aggregate supply (AD/AS) model that illustrates the general trends of the U.S. economy during the Great Recession. (The example may be from your research or the textbook.) In addition to your image, respond to the following:
General Trends in the US Economy during the Great Recession
How did the AD/AS equilibrium change over time? Support your claims by referring to your AD/AS model.
Select an economic factor (GDP, unemployment, price level) and explain what impact any shifts in AD or AS (or both) had on your chosen factor.
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