Managerial Economics Response

The aggregate demand is determine by the sum of demand for all the goods and service in the economy. There are four major components of aggregate demand which are: Consumption, Investments, Net exports, and Government purchases. We can rebuild ‘’the economy by instituting a massive public investment and financial support program focusing on jobs, housing, state and local services, green investments, and infrastructure investments, supported by expansionary monetary policy.’’ Epstein, G. (2009). A recession gap resulted in the aggregate demand (GDP) during President Obama term because of the high rate of unemployment. Consumers spend more in the economy when they are employed and less when they are unemployed. The decrease of unemployment will affect the aggregate demand curve by allowing for consumers to have more money to spend in the economy. When more individuals are working it will shift the aggregate demand curve to the right because it will be more spending in the economy. The increasing of jobs in the economy will increase the consumers spending in the economy because more are working. The Keynesian Model is appropriate for describing the health of the economy. When employment is at the full level, prices will be more flexible because when unemployment is high then wages and prices going to fall. Any amount of changes in the spending habits in the economy that hold the price level constantly will affect the aggregate demand curve. The government policies can play a huge role in the aggregate demand, because it is the total amount of goods and services spent in the economy. A shift of the aggregate demand curve to the right can result from: consumer’s increase in wealth, increase in population, or tax cuts because consumers will spend more, when they make or have more money. The decrease of consumer’s spending in the economy will shift the aggregate demand curve to the left.

Reference: Epstein, G. (2009). Obama’s Economic Policy: Achievements, Problems and Prospects. Retrieved from https://regulation.revues.org/7459#tocto1n

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