Week 3, Learning Team - Aggregate Demand and Supply Models - Economic Critique

1634 WordsSep 29, 20137 Pages
An Economic Critique of Aggregate Demand and Supply Models An Economic Critique of Aggregate Demand and Supply Models The recent fall of the United States economy has created a society of fear, insecurity, and doubtful investors, retirees, and consumers world-wide. Economists from around the world have come together to solve world-wide economic issues and bring stability back to businesses, households, and the government. Economics teaches you how to approach problems; it does not provide what is right or what is wrong, nor does it provide you with a definitive answer. Consistent evaluation of economic factors like unemployment, economic expectations, consumer income, and interest rates, can prove to be highly effective.…show more content…
The effects of inflation, government regulation and taxes can all play an important part in developing classical economic theories. Classical economists also take into account the effects of other current policies and how new economic theory will improve or distort the free market environment ("Differences Between Classical & Keynesian Economics", 2013). Consumer Income As of June 2013, median household incomes were up $598 month-over-month and $960 year-over-year. According to U.S. Department of Commerce (2013), “wages and salaries, the largest component of personal income, increased 0.5 percent in June after increasing 0.3 percent in May.” Personal expenditure is the vast element to aggregate demand. It is set on a household’s disposable income. There will be a shift to the left on aggregate demand if consumers buy more output at the price level. The current fiscal policy in place as it relates to consumer income states that the government can increase or decrease taxes on household income. An increase in taxes means a decrease in disposable income, because it will take money out of households. The opposite holds true if there is a decrease in taxes, because it will leave households with more money. Disposable income accounts for two-thirds of total demand. Economist had forecast a 0.1% rise, but reports show that spending fell 0.2% in May 2013 when adjusted for inflation. It is suggested that consumers pulled back from spending due to

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