The Canadian economy has been slowly recovering from the recession. So have some other economies. I want to be able to explain what is going on.
I understand why economies go into recession. At least I think I do. AD falls, many prices and/or wages are sticky, so real output falls. Done. But what about recovery from recessions?
In ECON 1000 I tell my students that prices and wages eventually fall (relative to trend), so the economy moves slowly down along the AD curve, and recovers by itself. Monetary and/or fiscal policy can and should be used to speed things up, by shifting the AD curve right, but aren't needed except to speed things up. But if they did shift the AD curve right to speed things up, prices and wages wouldn't need to fall, and the economy could recover immediately.