Supply and Demand Essay

1416 Words Jan 6th, 2013 6 Pages
Team C

Aggregate Demand and Supply Models

OPTION 2: ECONOMIC CRITIQUE

ECO/372

October 1, 2012

Option 2: Economic Critique

The aggregate demand and supply model (AS-AD Model) is an economic model that has the capabilities to account for business cycles of expansion and recession, and helps to model macroeconomic policy. Aggregate demand is the total demand of goods and services for a specific period of time. Aggregate supply is the total supply of goods and services at an overall period of time (Colander, 2010). The aggregate demand and supply model seeks equilibrium. For example, when the aggregate demand is higher, it will move the economy to equilibrium with higher levels of output and price
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The September 2012 CCI report stands at 70.3, up from 61.3 in August 2012 ("The Conference Board", 2012). The U.S. Real Gross Domestic Product, which measures total financial value of all final goods and services produced, increased at an annual rate of 1.3 % in the second quarter of 2012 ("Bureau Of Economic Analysis", 2012). Although these numbers look promising and indicators are leaning toward a slow but accelerated growth, consumer expectations will continue to affect demand. The economy’s performance in the next year will also depend on the 2012 election, what Congress and the administration do, unemployment rates, interest rates, and inflation. Expectations are personal feelings of confidence. Despite the improving trend, economic confidence has not recovered fully to the same levels reported in 2009. Going forward the question still remains, will the current increasing consumer confidence continue or fall by the wayside. Interest Rates The current Federal Reserve interest rate is between zero and .25%. It was lowered by ½ point on December 17, 2008, the 10th rate cut in over a year. The Federal Reserve took significant actions in response to the financial crisis to help stabilize the U.S. economy and financial system. They reduced the level of short-term interest rates to near zero and purchased large quantities of longer-term

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