Aggregate Demand

1467 Words 6 Pages
Inflation, Unemployment and the Fed

The real GDP is short for real gross domestic product, and the GDP is the toal value of all final goods and or services produced within a certain year/timeframe. It is important to undertsand that the GDP only counts the final product or service being used one time to have an accurate count or rate for that certain time period. For example, to get an accurate rate on on how much soda was consumed in 2015 you would not count all the soda that was manufactured in 2015 only how much was purchased in 2015. The amount consumed verius the amount produced is going to be different. This is also the case for detremining how much soda was produced in 2015, you would not count the amount consumed and produced
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Aggregate demand is the plotting of the actual production of an economy. The real GDP and price levels are used when determining what products or services are in a demand. If prices are high are things that are considered a supply in demand the GDP will contract verius if the prices are low the GDP will expand. Econmoists believe that the downward slopping of an aggregate demand is beneficial to our country. The economists have three theories that are affected by aggregate demand, wealth effect, interest rates and foreign exchange. The wealth effect is affected because the supply in demand increases which means the people are spending more money in the ecomony. The interest rates are lowered and people are saving more money and also borrowing more money from banks to stimulate an investiment. The foreign exchange rate is affected because of the rapid increase in the eceomny and more people will want to convert to the Amercian dollar becasue it will appear more attractive and inreturn more Amercin goods are purchased. All of these theories create a supply in demand for Amercian made goods and products. If prices go up the GDP will contract if prices go down the GDP will expand. The factors that may shift an aggregate demand curve are many consumptions such as a tax cut. If the taxes increase less money is being spent by consumers which means the demand goes down rates verius a tax …show more content…
The first article written by The New York Times explains why the Fed supports economic stimulus. Economic stimulus is the term used to help a struggling economy. The Fed argues by decreasing interest rates and increasing the spending within the government are a couple examples of how economic stimulus works. In this article the Fed’s chairman Mr. Ben S. Bernanke explains to the Senate how they are improving the economy. Mr. Benanke states that the econmony is continuing to grow, however the unemployment rate still remains over 6.5%. The Senate does not agree with the thought process that the Fed is using to imrpove the econmy. The Senate feels that lowering the interest rates hurts the senior citizens of the country because it reduces their return rates on some of their investments. The Senate also agrues that the continuous decreasing of interest rates will not help the econmy grow unless inflation decreases and the employment rate rises. Mr. Benanke respectfullt does not agree with this based on the facts that his tactics have shown improvement within the country’s finicial system. Mr. Benanke states that the Fed has transferred billions of dollars into the country’s Treasury department and that the monetary policy does promoth growth and eventually job creation. He proceeds to urge Congress to continue to make gradual cuts within their finicial capabilities and we will

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