...spending and taxes. It is the advisement of the team that the President consider increasing spending for educational programs to unemployed workers to obtain higher paying positions after school. This will in turn take individuals that are not gainfully employed and allow them to learn a trade, go to a community college or obtain a higher-level degree. Lastly, according to the Keynesian perspective, it is strongly suggested that the President lower taxes for the middle class. This should increase the aggregate demand by freeing up cash for families to use. Expectations The U.S. Economy is made up of the following categories of Unemployment, Consumer Income, and Interest Rates. Based on these factors consumers have their own expectations of how the economy should be and the government based on the data that they have privy to have their own expectations of the U.S. economy. In order to get the expert opinions of the U.S. economy, we must look at each category’s projection. According the Bureau of Labor 2012-2022 employment projection report, the total employment rate will increase 10.8 percent during this period. In this report it indicates that the labor force will be a slow growth thus projecting the GDP to increase by 2.6 percent annually. This percentage is “slower than the 3 percent or higher rate often posted from the mid-1990s through mid-2000s”. (Bureau of Labor The first recommendation is based on the Keynesian perspective and addresses government spending and taxes. It...
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...Economic Critique ECO/372 December 9, 2013 The current state of the economy in the United States has resembled the feeling on an elevator ride, up one minute down the next. But having an understanding of how the economy works is important in helping people makes the right decisions to maintain their household and strengthen the economy. This paper will focus on several factors that are used to measure if the economy is going in the right direction. These factors include; unemployment, future expectations, consumer income, and interest rates. We will identify the existing effect of the economic factors on aggregate demand and supply. In addition, we will identify current recommended fiscal policies by government leadership. This information will allow us to evaluate the effectiveness of the current fiscal policy recommendations using the Keynesian and Classical model perspectives. The United States have ridden this wild ride of the economy for years, this makes understanding the current status that much more important to know where it will lead. Unemployment To better understand the state of the unemployment situation is in today’s current economy it was decided to start with the Bureau of Labor Statistics or the U.S. Department of Labor. According to the Bureau of Labor Statistics, as of November 2013 there are 10.9 million unemployed people in the United States (U.S. Department of Labor, 2013), with an unemployment rate at 7.0 percent. This is due to...
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...The current state of the economy is in question by the United States population. Unemployment, expectations, consumer income, and interest rate are the topics important to consumers and businesses. Understanding each area will allow to understand the state of the economy today. Unemployment Unemployment is part of the economy that the United States government has been working on getting lowered. Within a one month period there has been little change. “The unemployment rate in the United States decreased to 7.2% in September 2013 from 7.3% in August 2013” (Trading Economics, 2013). The change of the long-term unemployed individuals had very little change at 4.1 million, accounting for 36.9% of the unemployed. The effect of the long-term unemployment creates a hardship and increased the risk of suicide and potentially shortened life expectancy. The government can assist with unemployment through policies they have in place. Some of the policies that can be implemented are educational advice, schooling and training facilities to prepare for new jobs, provide information on available jobs, incentives and regulations, tax incentives, and aid or grants to overcome specific obstacles. “While direct government intervention is inefficient in reducing unemployment, the government can remove other policies that make it harder for people to find work” (Boundless, 2013). Expectations The current economy for the United States of America had high expectations for 2013, but the outcome...
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...Economic Advisement paper Christopher Nieto, Veronica Rodriguez, Reynaldo Morales, Vanessa Monge 9/9/2013 ECO372 Mr. Frank Vigil Economic Advisement Paper There are different schools of thought about how the economy arrived at its current state. Conversely, there are different schools of thought on how to restore the economy. There are some who would advocate that going back to the same economic policies that created the currents conditions of the economy. In the following paragraph of this paper team B will discuss the current state of the United States economic recovery from the prospective of Unemployment, Consumer income, Interest rates, and Expectations respectively. This information will be summarized and recommendations made to the president regarding government spending and taxes based on the aforementioned economic factors. Unemployment Unemployment is affected by multiple economic factors. A recently suggested factor is consumer and private sector uncertainty. This uncertainty is created by the lack of confidence in the current state of the economy and its recovery. This has forced consumers and the private sector to reduce spending and cut cost, thus driving unemployment. Recent studies have demonstrated that uncertainty has been harming current economic activity. Consumer uncertainty is driving the decline in aggregate demand which forces the reduction in supply. When supply decreases, businesses respond by reducing spending and cutting back cost forcing...
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...1. Give two reasons why there may be a short-run tradeoff between unexpected inflation and the unemployment rate? Unexpected inflation reduces real wages W/P, so labor becomes cheaper (adaptive expectations). So with cheaper labor firms hire more workers to satisfy equilibrium condition of MRPL=W/P MRPL - Marginal revenue product of labor W/P - real wage W - nominal wage P - price level (change means inflation). Expected inflation is assumed making labor contract, which does not in general affect real wages W/P (rational expectations). Unemployment by itself tends to press on wages due to higher competition between workers for jobs. Another point is sticky prices, due to unexpected inflation consumers might receive higher real income thus demand more goods which became relatively cheaper due to unexpected inflation, in order to supply such goods by contracts producers are pressed to hire more workers - so adaptive expectations in relation to sticky prices also confirms this trade-off. Higher inflation caused by increase in aggregate demand provides pressure on higher 2. What is the difference between the short run and the long run Phillips curve? Phillips curve is a curve depicting the relationship between inflation and unemployment. Inflation only effects the rate of employment when inflation was not expected. When you have higher and expected inflation for example, firms believe their products are commanding a higher price relative to other goods and so they...
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...Keynes’s “GENERAL THEORY” valid only for modern capitalism? The modern capitalism interpretation: ............................................................................................ 2 Some evidence in the modern capitalism interpretation: ................................................................. 2 elements of a general theory of employment and potential instability under capitalism: ................. 3 ð A “monetary economy” and the search for pecuniary gains: ................................................... 3 ð Determination of employment in the short period: ................................................................. 3 ð The rudiments of a theory of expenditure and critique of Say’s law: ....................................... 4 ð A more detailed theory of expenditure: .................................................................................. 4 ð Uncertainty, expectation and confidence: ............................................................................... 4 ð Investment, asset choice and liquidity preference: ................................................................... 4 ð Employment and the essential properties of money: ............................................................... 4 ð Potential instability: ................................................................................................................ 5 ð Investments, saving and banking system:............................................................
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...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 Unemployment 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...
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...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 not to know that the current state of the nation’s economy is in desperate need of improvement. There are different schools of thought about how the economy arrived at its current state. Conversely, there are different schools of thought on how to restore the economy. There are some who would advocate that going back to the same economic policies that created the currents 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 the current state of the United States economic recovery from the prospective of Unemployment, Consumer income, Interest rates, and Expectations respectively. This information will be summarized and recommendations made to the president regarding government spending and taxes based on the aforementioned economic factors. Aggregate supply and demand looks at the economy as a whole. Aggregate demand is the sum of all demand in an economy and can be calculated by adding the spending on consumer...
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...NO: 15491119 NAME: GODWIN OMAGU QUESTION: Given the 'Rational Expectations Theory' a short run tradeoff between the price level and unemployment can only exist if the economy agent can distinguish arbitrary from real shock. Discuss Rational Expectations Theory What is the 'Rational Expectations Theory' The rational expectations theory is an economic idea that the people in the economy make choices based on their rational outlook, available information and past experiences. The theory suggests that the current expectations in the economy are equivalent to what the future state of the economy will be. This contrasts the idea that government policy influences the decisions of people in the economy. BREAKING DOWN 'Rational Expectations Theory' The idea is that rational expectations of the players in an economy will partially affect what happens to the economy in the future. If a company believes that the price for its product will be higher in the future, it will stop or slow production until the price rises. Because the company weakens supply while demand stays the same, price will increase. In sum, the producer believes that the price will rise in the future, makes a rational decision to slow production and this decision partially affects what happens in the future. "Inflation-Unemployment Trade-off under Adaptive Expectation and under Rational Expectation"? When agents in economy have adaptive expectations they predict future in the basis of what happened in the past. If...
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...supply. Aggregate demand is the sum of all demand in an economy, and will be calculated investment, services and not exports. In this paper team C will discuss the economic recovery from the prospective of Unemployment, Consumer income, Interest rates, and Expectations respectively of the U.S. This information will be summarized and recommendations made to the president regarding government spending and taxes based on the aforementioned economic factors. Unemployment 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...
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...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 not to know that the current state of the nation’s economy is in desperate need of improvement. There are different schools of thought about how the economy arrived at its current state. Conversely, there are different schools of thought on how to restore the economy. There are some who would advocate that going back to the same economic policies that created the currents 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 the current state of the United States economic recovery from the prospective of Unemployment, Consumer income, Interest rates, and Expectations respectively. This information will be summarized and recommendations made to the president regarding government spending and taxes based on the aforementioned economic factors. Aggregate supply and demand looks at the economy as a whole. Aggregate demand is the sum of all demand in an economy and can be calculated by adding the spending on consumer...
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...The U. S economy is impacted by many factors that can change it. Some of the factors that can affect it the economy are unemployment, expectations, consumer income and interest rates. Unemployment rate is that percentage of the total labor force that is unemployed but actively seeking employment and willing to work. (Investopedia 2012) From 1948 to 2004 the monthly U.S. unemployment rate has ranged between 2.5% to 10.8% averaging approximately 5-6% .The unemployment rate is considered a lagging indicator, confirming but not foreshadowing long-term market trends. (Investopedia 2012) Unemployment not only affects the U.S economy but also household economy. Without employment there is no income to purchase goods and services, therefore hurting the economy. Households are where the economy starts and with no incoming income there is no outgoing spending. Expectations refer to how individuals and companies knew the future of certain economic variables, including market prices, individual income, company profit and tax. (eHow.com) Expectations is an integral concept in economics because individuals’ and companies expectations themselves affect the very economic values that the expectations are directed toward. Consumer income is the amount of income is the amount of income remaining after taxes and living expenses have been deducted from wages. This is the amount of money a person has to spend, save or invest. Consumers’ income (our income as working citizens) can affect the demand...
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...Fact 2) Keynesian economics includes the idea that A) economic policies are ineffective. B) the economy is basically stable. C) prices adjust to clear the markets. D) labor markets don't always clear due to wage rigidities. Answer: D Diff: 1 Topic: Keynesian Economics Skill: Fact 3) Among the propositions of the Keynesian school of thought is A) economic policies are ineffective. B) aggregate supply management is the key to a stable economy. C) aggregate demand determines equilibrium output. D) rational expectations. Answer: C Diff: 1 Topic: Keynesian Economics Skill: Fact 4) Keynes believed which of the following? A) The government has a role to play in fighting inflation, but not in fighting unemployment. B) The government has a role to play in fighting unemployment, but not in fighting inflation. C) The government does not have a role to play in fighting inflation or unemployment. D) The government has a role to play in fighting inflation and unemployment. Answer: D Diff: 1 Topic: Keynesian Economics Skill: Fact 5) Many economists challenged the idea of activist government intervention in the economy following the A)...
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...Is the assumption of rational expectations sufficient to ensure policy neutrality? Expectations play a vital role in determining the behaviour of the economy. How agents respond to a policy decision is critical to understanding the size and direction of the economy. For example agents make decisions to buy/sell stocks depending on their expectations of future profits or future interest rates. Therefore policy makers should take into account the expectations of people who make choices that affect future outcomes. In addition to agents’ expectations of future, we need to consider what information is available to the agent and based on what kind of knowledge does the agent make a decision at the first period (t). Previously economists modelled expectations on recent past information available to agents which the agents than used to adapt to the current situation; this form of adaptive expectations behaviour means that agents learn from past experience to expect future event, which means that adaptive expectations will be useful when future events are the same as past. Let’s look at a simple example of adaptive expectations (AE) first to lay the foundation for the other important and more relevant assumption of rational expectations (RE). If we had an inflation rate today of 3%, agents who use AE will forecast that next period’s inflation rate as 3%. So, with this basic example of AE we would have π ’ π t − 1 Where inflation expected is equal to the lagged inflation rate....
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...Economic Factors that Influence Aggregated Demand and Supply Amanda Brickey ECO/372 February 06, 2014 Ed Mendicino Economic Factors that Influence Aggregated Demand and Supply Having a solid economy is not a simple task, however possessing the ability to modify and create new ways will make for a prosperous economy. Many factors affect the economy in substantial ways. Within this evaluation of the U.S., these factors will be explained, give an overview of the current state of them, and an analysis of how they affect aggregated demand and supply. These factors include unemployment rate, expectations, and interest rates. Additionally, a set of recommendations for government spending and taxes will be offered based off the economic factors current states. As of December 2013, according to bureau of labor and statistics, unemployment average is 6.7%. Across the U.S. however some states rate has increased while others had decreased. Currently 39 states had decreases, two states had increases, and nine states had not change from November 2013 to December 2013. For most states, the ongoing lower rate is not a shock as it has continued to decline since 2009 when President Obama took office and signed in the Recovery Act and the Reinvestment Act. Since then the economy has gradually came out of the recession of 2008. Over 7.2 million jobs have been created in the past 40 months by businesses and the auto industry and American manufactures added over 500,000 jobs since January...
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