Assignment:
Discussion 1:
Right off the bat I would agree with David Malpass based purely on economic data history. Since 2014, when the article was published, the global GDP growth rate has increased (World Bank, 2019). At least one of Malpass' five suggestions has taken place, which he stated was all that was needed to increase global growth outlook (Malpass, 2014). The Federal Reserve did raise interest rates above its lowest point in 2014 at 0.25% to 0.75% by the end of 2016 (Amadeo, 2019).
A higher debt limit would only mean additional government spending. In the short term this helps to improve the economy (Amadeo, 2019). In the long term it could mean trouble. The larger our national debt grows; the less confidence investors might have in our economy. When investment confidence starts to fall it could unleash a domino effect sending our economy in to a downward spiral of events.
If global growth were to decline, it would have an effect on the U.S. GDP, employment, and inflation rates. Simply put, the U.S. economy does not operate in a bubble. Any fluctuations taking place in the global market will have an impact on the U.S. economy. The U.S. GDP is the sum of several variables: spending by households, investment spending by business, government spending, and spending by the foreign sector consisting of exports and imports (Amacher, 2019). Global fluctuations would impact exports and imports directly, therefore, effecting GDP. The negative global trend would also have a negative effect on U.S. inflation rate. As global output declines, the price for all goods would rise globally, which equates to an increase in inflation. As everything grows in price, it will cause workers to demand higher wages. This would in turn affect the U.S. employment rates as well. As higher wages are demanded, employers would respond by hiring fewer workers, and therefore, increasing unemployment.
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.).
Amadeo, K. (2019, March 21). Fed Funds Rate History with Its Highs, Lows and Chart. The Balance.
Malpass, D. (2014, January 22). Five big steps toward faster global growth. Forbes.
The World Bank. (2019, April 12). GDP Growth (Annual %), World Bank national accounts data, and OECD National Accounts data files.
Discussion 2:
1. Would you agree or disagree with David Malpass's suggestions? Why or why not?
2. What challenges will the U.S. economy face give a higher debt limit for future economic growth?
3. Describe what would happen to GDP, the unemployment rate, and the inflation rate if global growth declines.
References
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.).
Malpass, D. (2014, January 22). Five big steps toward faster global growth. Forbes.
Discussion 3:
The aggregate demand curve slopes downward because it is an inverse relationship between price level and real GDP (EconplusDal, 2017). When mapped to a graph with the ‘Y' axis representing price level, and the ‘X' axis representing real GDP, the aggregate demand curve will slope downward as price level decreases and real GDP increases.
The aggregate supply (AS) & demand (AD) curves might shift on a graph for a number of reasons. The AD curve will shift when there is a change in any one of the four variables used to calculate the total AD, but there is no change in price level (Regis University, n/d). Another reason AD will shift will be to any shift in AS. According to Say's law, supply creates its own demand (Regis University, n/d), therefore, any shift in AS will shift AS. AS will shift when there are changes to technology or a change in the amount of resources (Amacher, 2019).
Changes in AD & AS will affect the economy in multiple ways. When the AD curve shits right the graphs will reflect increases in price levels and GDP, with the opposite happening to a left shift. When AD shifts, prices and demand move in similar directions (Amacher, 2019). Additionally, either shits to the AS curve will also affect price level and real GDP in a similar way. When AS shifts left, there will be less supply at every price level, or the same real GDP at a higher price level (Amacher, 2019). As real GDP falls and price levels rise is considered the worst economic scenarios (Amacher, 2019)
Classical economists emphasize AS because they believe the AS curve is vertical in the long run, with the long run equating to the time period in which the economy is normally at or near the full-employment level of output (Amacher, 2019). Classical economists "expect that automatic market forces will always push real output toward the full-employment level." With a constant vertical AS curve, any shift in the AD curve would only change the price level (Amacher, 2019).
Keynesian economists emphasize the AD curve due to their focus on ‘demand shocks,' or "changes in AD," (Amacher, 2019). Keynesians lean toward the concept that fluctuations in the AD curve correspond with the business cycle of the economy. These fluctuations are meant to be monitored and regulated by the government in order to minimize impact, or as a means of ‘smoothing out' the ups and downs (Amacher, 2019).
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.).
EconplusDal. (2017, March 2). Y1/IB 18) Aggregate demand - shifts and the downward slope. Links to an external site. [Video file].
Regis University. (n.d). Aggregate Demand/Aggregate Supply Macro Model.
Discussion 4:
1. Discuss the reasons why the aggregate demand (AD) curve slopes downward.
2. What causes the AD curve and aggregate supply (AS) curve to shift, respectively?
3. How would a change in AD and AS affect the economy, respectively?
4. Why do Keynesian economists emphasize AD whereas classical economists emphasize AS?