EBK MACROECONOMICS
EBK MACROECONOMICS
5th Edition
ISBN: 8220106773925
Author: KRUGMAN
Publisher: MAC HIGHER
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Chapter 6, Problem 1QFT
To determine

To determinethebehavioral patterns during a recession and its effect on the economy.

Concept Introduction:

Economic Recession: This period is the early stage of depression, economy is in the declining stage in this period anda slowdown is seen in the stock market, house good market as well as there is increase in unemployment.

Expert Solution & Answer
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Answer to Problem 1QFT

At the time of great depression, the spending of people had reduced. Because of recessionary pressure, people started to hold the cash instead of investing or spending.This led to reduced demand in the economy.

Explanation of Solution

  • In the given case, it is profitable for company M to close some of its stores at the time of great depression because there was a large fall in consumption of people.Lower demand led to lower volume of output being produced.

Thus, it was more profitable to shut down few of the stores to save the fixed cost of production such as rent payable on capital.

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