Top-Rated Free Essay
Preview

Aggregate Demand and Supply Models

Good Essays
418 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Aggregate Demand and Supply Models
Aggregate Demand and Supply Models

ECO/372

07/09/2013

Aggregate Demand and Supply Models

As it stands currently the existing effect of the economic factors on aggregate demand and supply are: unemployment, consumer income, and interest rates. In this paper we identify the existing effect of the economic factors on aggregate demand and supply. The American people have little to no income when unemployed, this in turn causes a decrease in demand for the economy. This type of event causes the aggregate demand to curve to the left. One of the main reasons unemployment remains high to this day is the lack of demand. A shortfall in aggregate demand is precisely the type of issue that can be addressed by monetary policy, however, to do so we need continuous monetary stimulus to progress toward maximum employment stability. The crash of the housing market has set tremendous limitation on consumer and their spending. Sternness on behalf of the government to a certain extent has decreased aggregate demand during this recovery period. These actions have directly impacted growth. What this means to us is that lower government spending and higher taxes call for disposable income for consumers, work for government contractors diminishing, and a decrease in government payroll. Another factor that has had great effect and impact are the levels of uncertainty. The events leading to this state have yet to be resolved which in turn have caused a lack of willingness and confidence within consumers. In the beginning the levels of uncertainty reflected the force of influence the recession had on us as consumers. This is something that had not been experienced in several years which made it difficult for us to handle or even find a way to get by in a more successful demeanor. After extensive research and analysis it is safe to say the supply-side considerations explain some of the rise in unemployment, which once again confirm the lack of demand as well as the fact that the economy is suffering first and foremost of a weak demand rather than a shortage of supply.

References
Williams, J. C. (2013, February 25). The Economy and Fed Policy: Follow the Demand. Federal Reserve Bank of San Francisco. Retrieved from http://www.frbsf.org/economic-research/publications/economic-letter/2013/february/economy-fed-policy-follow-demand/

Thoma, M. (2012, March 28). Demand, not supply, is restraining the economy. CBS News. Retrieved from http://www.cbsnews.com/8301-505123_162-57405230/demand-not-supply-is-restraining-the-economy/

References: Williams, J. C. (2013, February 25). The Economy and Fed Policy: Follow the Demand. Federal Reserve Bank of San Francisco. Retrieved from http://www.frbsf.org/economic-research/publications/economic-letter/2013/february/economy-fed-policy-follow-demand/ Thoma, M. (2012, March 28). Demand, not supply, is restraining the economy. CBS News. Retrieved from http://www.cbsnews.com/8301-505123_162-57405230/demand-not-supply-is-restraining-the-economy/

You May Also Find These Documents Helpful

  • Good Essays

    ECO 372 Final Exam

    • 1897 Words
    • 5 Pages

    ECO 372 Final Exam 1).The largest source of household income in the U.S. is obtained from2) The market where business sell goods and services to households and the government is called the3) Real gross domestic product is best defined as4) Underemployment includes people5) The Bureau of Economic Analysis is responsible for which of the following6) The Federal Reserve provides which of the following data7) Consider if the government instituted a 10 percent income tax surcharge. In terms of the AS/AD model, this change should have8) If the depreciation of a countrys currency increases its aggregate expenditures by 20, the AD curve will9) Aggregate demand management policies are designed most directly to10) Suppose that consumer spending is expected to decrease in the near future. If output is at potential output, which of the following policies is most appropriate according to the AS/AD model11) According to Keynes, market economies12) The laissez-faire policy prescription to eliminate unemployment was to13) In the AS/AD model, an expansionary monetary policy has the greatest effect on the price level when it14) The Federal funds rate15) What tool of monetary policy will the Federal Reserve use to increase the federal funds rate from 1 to 1.2516) If the Federal Reserve increases the required reserves, financial institutions will likely lend out17) Suppose the money multiplier in the U.S. is 3. Suppose further that if the Federal Reserve changes the discount rate by 1 percentage point, banks change their reserves by 300.To increase the money supply by 2700 the Federal Reserve should18) If the Federal Reserve reduced its reserve requirement from 6.5 percent to 5 percent. This policy would most likely19) A country can have a trade deficit as long as it can20) A weaker dollar21) In the short run, a trade deficit allows more consumption, but in the long run, a trade deficit is a problem because22) Considering an economy with a current trade deficit and considering only…

    • 1897 Words
    • 5 Pages
    Good Essays
  • Good Essays

    Maintaining a stable economy is no small challenge for any nation however possessing the ability to change and invent new and created ways of maintaining makes for a thriving economy. This newsletter will summarize the different economic factors that affect aggregate demand and supply such as unemployment, expectations, consumer income, and interest rates within the United States. Additionally, what fiscal policies are recommended by the United States government and whether or not these policies are effective and getting them back on track are discussed.…

    • 1418 Words
    • 6 Pages
    Good Essays
  • Better Essays

    Expectations play an important role in the state of affairs and present conditions of the country. If we take the recent housing bubble bursting and the resulting decline of the housing sector of our economy, prices have fallen significantly, to the…

    • 1564 Words
    • 5 Pages
    Better Essays
  • Satisfactory Essays

    GM 545 You Decide

    • 379 Words
    • 2 Pages

    The economy has been in a rough shape for a number of years. Many people have lost their jobs, their homes, their savings, and their confidence. Although the recession lasted for a while, the nation is going through a recovery mode. As the new senior economic advisor to the President of the United States, I need to recommend a plan of action to help curve inflation, unemployment, and economic instability. First, I have to take a look at what my colleagues recommend and take into account our monetary and fiscal policies.…

    • 379 Words
    • 2 Pages
    Satisfactory Essays
  • Better Essays

    The United States economy has suffered the worst recession of the post-World War II era in 2007 and 2008, and has endured an anemic recovery since. However, the economic landscape may be changing. United States unemployment has fallen for four consecutive months, down from 9% in September to 8.3% in January. Four economic factors (unemployment rate, expectation, consumer income, and interest rates) affect supply and demand in different ways as discussed in this paper.…

    • 1429 Words
    • 4 Pages
    Better Essays
  • Better Essays

    In our team paper, we are going to evaluate, assess, and apply various economic situations from a Keynesian and Classical perspective. As the global markets increase and decrease over time careful modifications of the economy of the United States need to be made. After a comprehensive assessment of the current economic situation team C has agreed, that the Current State of Interest Rates, unemployment, exceptions, and consumer incomes and spending are the distinct factors that have an influence on economic forecasting and growth. The US is still recovering from the financial crisis there is still some skepticism, despite recent signs in improvement in money markets, gross domestic product, and unemployment reduce to a five year low.…

    • 1239 Words
    • 5 Pages
    Better Essays
  • Satisfactory Essays

    ECO 372 Expectations

    • 429 Words
    • 2 Pages

    The last three quarters of the economy have been very strong and the fourth quarter week (Payne, 2014). While the fourth quarter’s poor performance is disappointing from an economic stand it is normal for there to be a weak fourth quarter after three strong quarters (Payne, 2014). All signs show that 2015 should be a year of growth for the US economy. Unemployment is expected to decline while GDP, Business spending and home sales are all expected to increase steadily by the end of 2015 (Payne, 2014). Inflation is expected to increase slightly by .3%, but with the expected growth in consumer spending due to record level job openings there should not be a slowdown of GDP.…

    • 429 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    The purpose of this assignment is to prepare a paper U.S. Federal Reserve monetary policy that characterizes the state of the economy. This paper will describe the primary concern in which the Federal Reserve currently has in regard to the economy. In addition, this paper will provide the stated direction of recent policy as it affects the economy. Finally, an explanation of the current actions by the Federal Reserve that confirms the…

    • 711 Words
    • 3 Pages
    Good Essays
  • Good Essays

    In this paper I will analyze the three tools the Fed uses to influence the direction of the economy. I will also briefly discuss what the Fed should do to get the economy out of a recession. The United States economy has been in a recession for a while now. It appears that the United States govern body has spent a lot of time fighting and disagreeing at the extent of the tax paying citizens. The Federal Government uses three policy tools open market operations, reserve requirement, and discount rate. The United States Federal most vital and commonly used program tool is open market operations.…

    • 342 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Macroeconomics is the study of the economy as whole (Colander, 2013, p. 5). It considers the problems of inflation; unemployment, business cycles, and growth (Colander, 2013, p. 5). Inflation is a general increase in prices and fall in the purchasing value of money. Unemployment rate refers to the number of people actively looking for a job but unable to find one (Colander, 2013, p. 5). Business cycle is a cycle or series of cycles of economic expansion and contraction (Colander, 2013, p. 5). Economist analyzes each of these factors to determine the state of the economy. We live in an environment that is constantly changing. There are a number of factors, behaviors and trends that affect the economy. One event can caused a domino effect. This paper will outline how scenarios such as purchasing groceries, massive layoffs, and a decrease in taxes affects government, households, and businesses.…

    • 739 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Ever since the 1980s when President Ronald Reagan implemented a form of economic fiscal policy known as supply-side economics, there has been a continuing debate over whether a supply-side fiscal economic agenda or a more demand-side, Keynesian fiscal economic policy is more effective in promoting short and long-term real GDP growth. Like any analysis in economics, there are many variables at work in the economy, however the purpose of this paper is to try and isolate a few key variables in the economy such as unemployment, real GDP, consumer spending, the federal budget, and inflation in order to formulate a conclusion which can determine which economic ideology is more effective in promoting growth in the short and long-term in terms of real GDP. As a result of my historical analysis, I will show that neither extreme supply-side or demand-side economic theory is suitable in all economic climates. In order to promote sustainable real GDP growth, we must model our economic theory around the principles of the 1950s and 1980s which include fiscal conservatism, moderate tax rates, and productive government spending.…

    • 8545 Words
    • 35 Pages
    Powerful Essays
  • Better Essays

    "U.S Monetary Policy." San Franisco Federal Reserve. Federal Reserve Bank of San Francisco, 2004. Web. 10 Dec. 2011.…

    • 2174 Words
    • 9 Pages
    Better Essays
  • Good Essays

    Week6

    • 339 Words
    • 2 Pages

    The current downward trend for interest rates should help to expand the economy; however, loans are hard to come by and lowering the interest rate has little impact if businesses that need capital can’t obtain loans. The FOMC (Federal Open Market Committee), the 12 member committee that makes decision for the US Federal Reserve, is trying to stimulate the economy through printing money and purchasing treasuries.…

    • 339 Words
    • 2 Pages
    Good Essays
  • Good Essays

    Supply and Demand Paper

    • 867 Words
    • 4 Pages

    The necessity of a college education affects the price elasticity very little. Price elasticity for a college degree and education is more inelastic. The rate of tuition increase is much greater than the rate of students un-enrolling in college. According to Tuition Elasticity: Student Responsiveness to Tuition Increases. By Saif Ahmed and Anirban Ghosh. The percentage of decrease in student enrollment for every $100 dollar increase in tuition is 0.05 to 1.46%. This is a very small amount that would affect the enrolment of students. With the way the work environment is today, with wanting employees to have a degree and higher education, consumers are going to be more willing to pay the additional hundred dollar fee to earn their degrees need to stay employed or move up with their company. So there is not much that is affected for price elasticity on a college education.…

    • 867 Words
    • 4 Pages
    Good Essays
  • Better Essays

    From its inception, the central bank’s onus has always been a dual mandate; to maintain maximum employment while at the same time keeping stable prices. While we as economists have learned much about the mechanism through which monetary policy affects the economy, much is still unknown about the inner workings of the economy, and the long-term effects of varying monetary policy. Over the past two decades, the Federal Reserve has dictated that the inflation target rate should be close to two percent for the American economy, yet this idea has come into question in the past 5 years. In these more recent times, the Federal Reserve has struggled to stimulate an economy that has been launched into a recession by a global financial crisis. Their normal practice of lowering the federal funds rate became ineffective as the nominal interest rate approached the Zero Lower Bound (ZLB). Monetary policy fell into the “liquidity trap”, with the Federal Reserve running out of room to lower the nominal interest rate through open-market operations. As a result of this situation, many leading economists, including Olivier Blanchard, head of the International Monetary Fund (IMF), clamored for an increase in the target inflation rate, from its historical level of two percent to four percent, in order to give the Federal Reserve more room to lower the federal funds rate (and thus the real interest rate) before it reaches the ZLB (Blanchard, 2010). This paper aims to evaluate the validity of this claim through its basis in economic history and research, and finally makes a recommendation as to its adoption. This will be done in a three-pronged approach, first looking at empirical case-study evidence presented by the Japanese ZLB crisis between 2001-2006, and supplementing this with economic research and models being done on the…

    • 1985 Words
    • 8 Pages
    Better Essays