Aggregate Demand and Supply Models
August 21, 2014
Aggregate Demand and Supply Models
In order to examine the U.S. economy one must examine its unemployment rate. During the recession in 2008 the U.S. unemployment rate was at five percent. The aftermath of the recession caused the unemployment rate to increase to an all-new high. The rate in 2009 went up to 7.9 percent. In 2010 the rate increased to 9.7 percent. In 2011 it slightly decreased to 9.1 percent. In 2012 the rate dropped to 8.2 percent. In 2013 the rate then slightly dropped again to 7.9 percent. The U.S. current unemployment rate is 6.6 percent (US economy, 2014).
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Lower salaries can restore full employment, by arguing that employers will not add employees to create goods that cannot be sold because demand is weak (Monetary Policy and the Economy, 2014).
The United States economy was hard hit when the financial bubble popped post 2009. The economy has been taking three steps forward and one step back since. In the aftermath of the economic downturn; it left many investors and policy makers weary of having another economic meltdown. The economic growth of the U.S. depends upon free markets with government regulation to keep markets on an even keel. When speaking of economic freedom, it is in terms of less government regulation and with policies that are consistent with the industries it is geared toward, not constricting; and growth will accompany that stimuli. According to James Dorn from Investor’s Business Daily “Highly unconventional monetary policy since the Panic of 2008 has greatly expanded the Fed's power, distorted interest rates, misallocated credit, and made the Fed the largest buyer of government debt”.
In the offing for 2014, the increase of long term interest rates give glimpses of light at the end of the tunnel, cutting the deficit is also on the agenda, and the hot topic of tax reform will also be on deck. In the end, the Fed needs to find a sense of direction. The sense of direction will come from both political houses, democrats and republican, having a bipartisan outlook for decision making and execution to right, and keep US economy on the up and up. The expectation for 2014 is for law makers to see that the problem facing the economy comes from a systematically flawed government interfering with the markets. The response from political parties to lobbying from special interest groups is another worm in the apples core which greatly affects the markets and the economies volatility. The populace must also recognize the limits of the Fed, even so; it has grown to epic proportions, affecting stimulation of the economy to its inherent detriment. Even with such grim expectation the hope is for a limit of governments grip on economic growth and freedom, to once again regain footing and keep the economy driving forward (Dorn, 2014).
Since the 2008 recession, consumer confidence has grown. In 2012, consumer spending saw its second consecutive year of positive expenditures within the economy; with an increase in spending of 3.5 percent. This was 0.2 percent increase from the previous year. Three of the seven categories contributed significantly to the economies increase in spending. These were an increase in pre-tax income for consumers, housing, and transportation. Also, the unemployment rate was reduced 0.8 percent from the previous year. This increase in consumer spending is a result of the Federal Reserve Bank’s implementation of expansionary monetary policies. This was achieved through qualitative and quantitative easing. These policies were nicknames QE1, QE2, and QE3 relative...