Using all four components of GDP (C, I, G, and NX): Which of these four components of AD declined the most during the recession of 2007 to 2009?

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jameadows eNotes educator| Certified Educator

The four components of GDP (Gross Domestic Product) are personal consumption (C); investment (I); net exports (NX); and government expenditures (G). During the recession of 2007 to 2009, the component of AD (aggregate demand) that declined the most was private investment (see Google doc in the links below). 

Government expenditures rose during the recession, as Obama spent government money on stimulus plans and on unemployment payments. Personal consumption also stayed relatively stable (though orders of durable goods fell as the recession went on). Net exports actually stayed stable or rose in 2007 and did not fall until the fourth quarter of 2008 and into 2009. Since the Great Recession, as the recession of 2007-2009 is called, net investment as a proportion of the GDP has declined to its lowest levels since the 1930s. Experts believe that the decline in investment demand is because of excess capacity, weak expectations of sales in the future, and shifting investment overseas (see the link below).

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