I want to just show a simple graph of how real GDP moved during the crisis.
The yellow shows the actual points of real GDP falling into the crisis and coming out of the crisis to real values of capacity utilization. The points falling in and the points coming out are mixed in the one line. (I don't know how to make a dispersion line on a line graph, if it is even possible.) But the lower points are real GDP falling into the crisis. The higher line shows the economy coming out of the crisis.
The horizontal potential real GDP actually stayed fairly constant ($13.100 trillion) for the 3 years! involved in the graph, which was really nice because it allowed us to see that real GDP declines as the effective demand model calculates. The result was that the green upsloping line of calculated real GDP also stayed constant for 3 years, something quite fortunate actually. The yellow line follows very nicely the slope of the real GDP upsloping line, which is based on the Effective demand equation...
Real GDP = Potential real GDP +$3000 billion * (cu - els)/els
els = effective labor share, 76.5% ... cu = capacity utilization, independent variable ... $3000 billion is a constant for the amplitude of the business cycle around potential GDP in terms of real $billions of dollars (2005).
My point in this graph is to show that the economy behaves just as the Effective Demand equations would predict.
Update: I figured out how to put the path of real GDP on the graph. Here is the above graph made better. The crisis starts with capacity utilization around 80% and then falls to almost 67%. Then rises back up to about 76%. The path down and back up follows the predicted path of the Real GDP equation above.
