Aggregate Demand and Supply Model
April Martino, John Button, Alhagie Suwareh, Venetta Sanders, Antoinette Lowery
ECO 372
October 21, 2014
Alan Benson

Aggregate Demand and Supply Model
Unemployment
When unemployment is discussed the most common perception is that it is of a person without a job. The unemployed includes those individuals that are able to work but not willing to work. Unemployment also includes individuals that are waiting for a job they may have applied for but have not received word on, as well as those that have recently been laid off due to organizational restructure or closings.
Since mid-2009 output growth has been slow, the real GDP growth is averaging 2.1%, on a per capita basis, real GDP is still 1.6% lower than it was 6 years ago at the onset of the recession. On average the United States is adding approximately 170,000 jobs per month but this is still slow growth compared to the dramatic loss of jobs throughout the recession. The total unemployment rate has only lowered by a half a percentage point over the past year.
During a recession, unemployment rates increase because of layoffs or businesses closing their doors. In a case such as the one we faced in the late 90’s early 2000’s, the government could have pursued expansionary fiscal policy such as lowering taxes and higher government spending. “This will lead to an increase in AD and therefore, higher growth and jobs will be created reducing unemployment” (Pettinger, 2007).
A draw back to aggregate demand is if it increases too quickly it will cause inflation. The growth will be unsustainable and the boom very well may lead to a bust. The job creations in this scenario will only be temporary, therefore, it is important to maintain and managed aggregate demand with low inflationary growth. Slower growth “will allow a sustained reduction in unemployment” (Pettinger, 2007).