Aggregate Demand and Supply Model - Economic Advisement

Topics: Economics, Household income in the United States, Macroeconomics Pages: 5 (1649 words) Published: May 9, 2013
Aggregate Demand and Supply Model Economic Advisement
With a nominal GDP estimated at more than 15 trillion it is clearly the United States economy is one of the largest in the world. A person must have lived in a cave underground for the past several years to not know that the current state of the nation’s economy is in desperate need of improvement. Many academic institutions have thought about how the economy arrived at its current state and how can it be restored. Some would advocate not using the same economic policies that created the current conditions of the economy. Their philosophy is that if we stay the current course the economy would somehow miraculously recover itself over a period of an unknown amount of time. These same individuals believe that people are better off left to fend for themselves in this economy. On the other hand there are others that believe government intervention is the key to a faster economic recovery. In the following paragraph of this paper team C will discuss how the United States economy can recover from macroeconomic factors such as Unemployment, Consumer income, Interest rates, and Expectations respectively. This analysis will be done with the purpose of providing the President recommendations regarding government spending and tax policies. Aggregate supply and demand looks at the economy as a whole; it is the sum of demand in an economy and can be calculated by adding the spending on consumer goods and services, investment, and not exports. Aggregate supply is the total value of the goods and services produced in a country, plus the value of imported goods less the value of exports (Beggs, 2012). Unemployment:

Although the total nonfarm payroll employment rose by 163,000 in July, the current unemployment rate remains unchanged at 8.3 % about 12.8 million people currently unemployed. Employment rose in the professional and business service, food service and drinking places, and manufacturing (Bureau of Labor Statistics, 2012). Since the beginning of this year 2012, employment growth has averaged 151,000 jobs per month, roughly the same as the average monthly gain of 153,000 in 2011. The easiest way to understand how aggregate supply and demand affect unemployment is to think about unemployment in its simplest form. The rise and fall of the nation’s unemployment rate is at best a simple matter of supply and demand. The numbers of people who want jobs at necessary wages (labor supply) exceeds the number of people firms are willing to hire (labor demand) (Beggs, 2012). The most fundamental of economic model suggest that when supply exceeds demand the price in that market will fall; in the labor market this means that wages fall. It stands to reason that falling wages should encourage employers to hire more workers. Moreover, if wage fall firms production cost will decline this will induce competitive firms to reduce their price. The insinuation appears to be that lower wages and prices could solve the problem of unemployment and insufficient demand (Beggs, 2012). Expectations:

Expectations within an economy suggest that people within an economy make choices based on available information and their experiences. This theory suggests that current expectations in the economy will in some way affect the future state of the economy. However, in contrast a more rational explanation is that government policy influences the decisions of people in the economy. Every year we expect some type of tax refunds and that money could be used to pay off some debt or invest to gain further more capital or simply save it up, that is an expectation every year. While that is not enough to help move the economy it is of some help. Now during summer times people tend to travel a lot more and vacation, so that is money used either inside the nation or as a worst case scenario outside in other countries. That always helps the economy if it’s internal traveling. The growing real estate market has become more...
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