• Stock market crash
• consumer and business confidence decrease
• housing crash
• bank closings
• decrease in Autonomous planned spending

• high unemployment
• slower inflation or deflation
• rising inventories
• low investment and savings
• smaller multiplier
• high G spending and low T=high deficit
• low confidence
• good for countercyclical (used car industry)
• increase in risk premiums on bonds
• higher demand for T-bills

Three Types of Unemployment

• frictional
• cyclical
• structural

• older than 16
• non institutionalized
• must have looked for work in the last 4 weeks.

the economy has the capability to adjust itself to full employment through:

flexible (r), wages and prices.

• Savings function will shift rightward
• Puts downward pressure on the (r)
• so investment increases

• Any decrease in spending and increase in savings will be met with lower (r) 
• Lower (r) encourages C and B to borrow and spend the entire savings
• Any decrease in AD by increased savings will be reversed by the increase in borrowing and spending that will shift AD back

Decrease in AD =

• increase unemployment
• inflation has fallen
• real wages increase causing firms to lay off workers to cut back production
• new equil. in labor mkt shows at higher real wage firms decrease qd for labor.

Higher unemp. encourages workers to accept lower nominal wages and benefits.

• cost of production decreases shifting DAS curve to the right
• inflation falls more = expected inflation falls
• consumption increases
• firms can hire the necessary worker since wages have fallen more than prices (real wage decrease)
• more workers hired= production increases, GDP inreases

• economy will self adjust
• income goes back to full employment
• long run (takes too long) to take affect
• no change in deficit or debt except for that created by automatic stabilizers