Answer to Question 1
1. Services have become a much larger fraction of GDP in the United States since 1950, and goods manufacturing has dropped from 40 of GDP to 12 of GDP. Manufacturing production fluctuates much more than does the production of services.
2. Since 1950, there has been a significant increase in unemployment insurance and other transfer program availability. These make it possible for workers who lose their jobs during a recession to have higher incomes and therefore spend more. The increased spending helps to shorten the duration of recessions.
3. The federal government has become much more active in implementing stabilizing policies since 1950. Using policy measures has tended to decrease the severity of recessions and prolonged expansions.
4. Since 1950, the financial system has become much more stable, making credit more readily available during recessions, thereby increasing spending and lessening the severity of recessions. The financial crisis of 2007-2008 showed evidence of a return to financial instability.
Answer to Question 2
B
