Economic Advisemet Paper
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As the Presidents economic advisement team, we have been cited in this assignment to introduce some objectives that need to be accomplished in order to stimulate and rebuild the economy. Our job is to analyze and make suggestions to the president within these sectors: unemployment, expectations and anticipations, customers earnings, as well as interest rate and how they influences aggregate supply and demand. The information below will relate and describe the goals of the teams regarding the current and future economic challenges our nation is faced with. Facing economic changes can be a difficult yet inevitable so the best way to look at the future is to look back at the past. In the past, the Keynesian views have varied from the classical views but before changes are made permanent, we feel it is important that we get guidance from their previous ventures.
Starting by looking at the Keynesians view of unemployment, we know that the present unemployment rate is 7.8%, this is a drop from the previous 8.1%. This is an indicator as to how much labor is available for production, which indicates how fast the economy can grow. Therefore, the effect that unemployment has on the aggregate supply and demand is that with 1 percent of change in the employment rate will have a 2 percent change in the opposite direction in output (Colander, 2010, pp. 168-171). Currently there has been a 0.3 percent decrease in unemployment, which means that there is more output, and this coincides with the 2% economic growth that has just taken place. This means that there has been a move to the right on the short run aggregate supply and demand curve (Colander, 2010, pp. 232-242). If we look at the classical view we see that their theory emphasizes that economics is an independent science, acting concurring to its own rules. The fundamental classical thoughts are that unemployment comes from an alteration in a market that is troublesome to employment. It is said that when income of an employee, organization, or nation when factoring in the consequences of price increases on the buying power are secure beyond the market-clearing level, this brings about the large amount of people looking for jobs to be more than the real number of jobs available. Furthermore, reflecting the idea of minimum wage approved by the government to defend the honesty of employees, unemployment rates are likely to rise because managers employ those with more abilities, ousting those with not as many talents.
The next think we reviewed was Keynesian expectation. Their way of thinking is that businesses and consumers believe that the economy is growing and will continue to grow they will produce more and spend more moving the aggregate demand to the right, which is good. Additionally, if consumers believe prices will rise, they buy more now before everything gets too expensive and this also moves the aggregate demand to the right. Conversely, if businesses and consumers expect the economy to worsen, then businesses will produce less and consumers will spend less, moving the aggregate demand to the left (Colander, 2010, p.237). Currently the aggregate supply and demand has been moving slowly back to the right towards the potential output and long-run aggregate supply curve (Colander 2012, pp. 242-243). However, if we look at it from a classical perspective, civilization sees the world as continually altering, and lies close to national liberalism in that it pursues to comprise the developing world around us. Numerous sociopolitical actions and philosophies such as libertarianism have their foundations in the classical perspective. Classical theorists deviated on their opinions on the developing society. While countless others see it as the right of the cultural majority to intrude what is considered normal and customs, contemporary libertarians oppose any law of culture and society.
In order to ensure that our economy continues to grow and function, employment is key and the rate of wages that our workers are going to make is going to be based off of cost of labor. Our cost of employment is going to be based off the amount of spending in the current economy, interest rates, and aggregate demand. Increase in investments are key, so that consumer are returned with interest paid, therefore increasing their income. Consumers should be turned to investing, rather than saving majority of their money, so that they are investment returns.
The classical view of consumer income, which is the amount of money available after taxes and living