1: Draw and carefully describe a graph that utilizes the Aggregate Demand/Aggregate Supply model that would illustrate the current state of the aggregate economy in the United States as of October 2021.
The Aggregate Demand/Aggregate Supply Model is first introduced in Chapter 11 (Links to an external site.) of your text and is further explicated in Chapters 12 and 13. Make sure that you explain your graph in your own words.
Illustrate the current state of the economy relative to real potential GDP (Links to an external site.). How big is the gap between actual and potential real GDP?
Instructions: You should draw your own AD/AS graph which you can then embed into your post. Your graph needs to be clearly labeled and explained in some detail. Your graph must include an aggregate demand (AD) curve, a short run aggregate supply (SRAS) curve, and a long run aggregate supply curve (LRAS, Potential GDP) curve. You should clearly label both axes of the graph.
Identify the current price level using the GDP deflator (Links to an external site.) on the vertical axis and the level of real GDP (Links to an external site.) on the horizontal axis. You can use the figure from your text below to model and adapt in framing your response.
You should use the most recent data from the third quarter of 2021 which is available on FRED (Links to an external site.).
For information about how to embed an image in a discussion and reply see: (Links to an external site.)
Should you have difficulty embedding your graph into your post you can attach a copy of your image as a Word or PDF file but you should be able to embed if you follow the instructions here (Links to an external site.). You will receive extra consideration on your post if you embed the image in your post.
Please draw your graph rather than cut and paste from an outside source. Graphs that are simply copy and pasted from other sources including your text will be penalized at least 4 points.
2: As you have learned consumer expectations (Links to an external site.) are a major driver of the short run path of the economy. Consumer spending account fors about 70% of GDP and consumer confidence (Links to an external site.) is a major factor in shifting Aggregate Demand.
Describe how your expectations about the economy have changed because of Covid-19. How did you alter your spending patterns during this pandemic? Do you expect consumer confidence and business expectations to improve in the months ahead?
Utilizing the equation GDP= C+I+G+ (X-M) from Chapter 6 what is your forecast for which way the AD curve will shift between now and the end of 2021? Why?
Here is a figure from your text that you can model and adapt in framing your response:
Macro Equilibrium with recessionary gap from text
In Q3 of 2021 the price level is about 119 with a base year of 2012. Real GDP is about $19.5 trillion and potential real GDP is about $19.8 trillion so there is an output gap of about $300 billion.
