Cyclical Fluctuations in Aggregate Economic Activity in the United Essay

Cyclical Fluctuations in Aggregate Economic Activity in the United States - Essay Example ailed as father of modern economics and as the most influential economist of the 20th century explains that a normal circular flow of money will be achieved if people have cash on their hands. He further states that people’s? refusal to spend and resorts to money hoarding creates a liquidity trap which leads to recession and depression. As such, the government has to spend money or to â€Å"pump prime† to regulate once more the circular flow of money. Karl Marx, explained that the cycle of boom and bust is inherent to capitalist system. He provided a comprehensive critique of the capitalist system. He explained the cycle of boom and bust as a logical consequence of laws governing capitalism (Law of Surplus Value, Law of Tendency of Rate of profit to Fall, Law of Correspondence of the production in Relation to the productive Forces, Law of Accumulation and Law of Competition) (Dickhut). However, in contrast to the above economist, Marx major contribution lies in concludi ng that capitalism is deemed towards doomsdays. He theorized socialism as an alternative economic system not just to remedy the impact on the lives of the working class and the nation in general on the devastating effect of the boom and bust cycle but to radically eradicate it and its consequences of unemployment, inflation, recession and depression. III.Critical Analysis Great Depression The Great Depression of 1930’?s ? is widely considered by economist as a bust period. The US stock market declined by 89% (Ferguson).From August of 1929 to March 1933,the Gross Domestic Product(GDP) of US declined by 33%.Unemployment rose from 5 million in 1930 to 13 million in 1932.People are lining for food and are moving from one place to another as they could not afford rents. Children ages 10-18 are already... This essay provides a critical analysis of the reasons behind Great Depression of 1929-1933 and recent Great Recession, that followed the Financial crisis of 2008. Major roots of the Financial crisis are identified in the essay, monetary and fiscal policies of the US governing bodies are also assessed. Cyclical fluctuations in aggregate economic activity are now accepted as quite part of economic life with politicians describing such crisis as a necessary pain every so often. The reality of economic growth, recession and recovery is a classic manifestation of the capitalist cycle of boom and bust. The Great Depression of 1930’s is widely considered by economist as a bust period. The US stock market declined by 89% . Unemployment rose from 5 million in 1930 to 13 million in 1932. The US economy was able to bounce back from depression with then President Roosevelt policy of bank holiday and gave authority to Federal Reserve to provide loans to its non members. In 2008-2009, US experienced 4 quarters of economic contraction, the worst recession after the Great Depression. Unemployment is up by 14.9 million and 300,000 homeowners are losing their property every month on foreclosure after the NBER declares that recession is over in June The US has employed Keynesian theory- boosting its aggregate demand to save its economy from further collapse. The giant corporations have been bailed out by taxpayer’ money, while the value of home real estate has yet to rise up. This kind of solution is artificially boosting the economy.