Eco372 Economic Critique
Business and Management
Submitted By faye08
University of Phoenix
Aggregate supply and demand are two of the most important elements to consider in all of macroeconomic, regardless of which of the many theories or models one applies. Understanding how various economic factors influence supply and demand is very important particularly vital to the government while determining economic policy. Factors like unemployment, expectations, consumer income, and interest rates all have an affect on the aggregate supply and demand. These factors will be discussed from both the Keynesian and Classical macroeconomic perspective.
Current State of Unemployment, Expectations, Consumer Income, and Interest Rates
The unemployment rate has been steadily dropping over time. As of the summer of 2012 the unemployment rate was at 8-1/4 percent, and fell to a little below 8 percent as of January 2013 (Board of Governors of the Federal Reserve System, 2013). However, this improvement is still well above unemployment rates pre-recession. Also, a larger portion of the unemployed have been so for six months or longer (Board of Governors of the Federal Reserve System, 2013). In more recent months according to "Bureau Of Labor Statistics" (2013), “the unemployment rate edged down to 7.4 percent as of July 2013” (News Release USDL-13-1527 ). Economists try to interpret this information in order to better determine which way government policy should go. According economist, John C. Williams, President of the Federal Reserve, San Francisco, the primary reason for high unemployment percentages is due to lack of demand in our economy, (Williams, 2013). Furthermore his report, The Economy and Fed Policy: Follow the Demand, go on to indicate more spending is necessary to remedy low demand. He also indicates that the supply of labor is greater than the demand for labor...