Posted on 02/09/2010 4:09:19 PM PST by Paul46360
Can anyone point me to a good conservative site to get an answer to this??
Suppose that an unpopular president was leaving office, and a very popular candidate was elected, and this significantly increased the public’s confidence in the future of the economy. Using the aggregate demand/aggregate supply model, explain the effect on the U.S. economy.
Expectations will cause AS and AD to increase. In the short-run, GDP will increase but it is unclear what will happen to the Price Level.
http://www2.hmc.edu/~evans/chap2.pdf
Look back to the year 2008. As it became apparent that O was going to be elected, the jobs began drying up. Corporations began laying off employees.
The highest number of employees in one month was January.....when O was inaugurated.
No one has any confidence in him or his administration.
If the incoming new president is perceived as a socialist/Marxist with a very great hatred for capitalism, I would say that there would be a very big down turn in the economy, like were a seeing today. Markets flee uncertainty.
As a (very) small business owner, I can safely say that people spend when they aren’t terrified of losing their jobs. As confidence goes up, so does the amount of money spent, particularly when gas prices stay in a comfortable range.
Thanks,,I have a textbook with all of the words,,I wanted so real world answers.
Is your business consumer or commercial in nature?
I think we just went through this. It demonstrated that the “public’s” perception was not nearly as important as the view of the incoming candidate by business.
Clearly in the case of Obama the uncertainty caused business to hunker down and avoid risks. This included not starting new ventures. On top of that, there were those who were not uncertain. They believed, rightly, that the new administration would bring policies unfavorable to business.
So, I repeat, the perception of the public can be secondary to the movement of the economy.
I can tell you that I will start spending again the day that President Palin or some other real American is sworn in, and that until then I am on strike as a consumer (buying only what I need and making things/repairs myself rather than hiring them out wherever possible). As an employer, I am not hiring at all until the same date - the risks from socialist commands are too great, and I have no desire to send more tax dollars to make it easier for Obama and Pelosi to destroy the country I love.
The supply/demand implications are clear if this pattern is repeated many times. The increased demand for goods and services will boost production and prices, boosting the economy. Meanwhile, businesses will hire to meet the growing demand in the more secure environment in which they don't have to worry about Obama/Pelosi creating new strings that add to the cost of employment. That's obvious, but economics cannot tell us whether I am unique or one of millions.
>> In the short-run, GDP will increase <<
In other words, the Keynesian model fails again — not that empirical, real-world data will ever persuade Larry Summers, Paul Krugman, Joe Stiglitz, et al.
Consumer. Fine art supplies and custom picture framing with basic lamp repair as a miniscule aside. We no longer have a storefront, as customer purchases dwindled both in quantity and monetary value.
Since Obama has threatened increased business taxation on businesses making over $250K, increased business health care fees and onerous environmental legislation - businessmen and women are holding their breath. Many will fold their businesses and retire should the above materialize.
Thus we are facing a recession or a depression of the worst magnitude. Pile on massive debt (Stimulus Package) and in the words of Harry Potter's shrunken head - IT'S GOING TO BE A BUMPY RIDE - CLENCH YOUR BOTTOMS - FASTEN YOUR SAFETY BELTS - IT'S GOING TO BE A BUMPY RIDE!
I can tell you that I will start spending again the day that President Palin or some other real American is sworn in, and that until then I am on strike as a consumer (buying only what I need and making things/repairs myself rather than hiring them out wherever possible). As an employer, I am not hiring at all until the same date - the risks from socialist commands are too great, and I have no desire to send more tax dollars to make it easier for Obama and Pelosi to destroy the country I love.
I have taken this a step beyond that... right now, I don't work. Why bother working if these motherf'ers are going to take 40% of it? I'll barter services for goods, or goods for goods, or do small consulting jobs... but only if I can show a taxable income of $0 at the end of the year.
If you get an audit, they will not like the barter if they find out [5th Amendment: don't tell them]. I've been audited far too many times to try that and know the tax laws too well. In fact, I expect an audit to be triggered by the rather large change in my taxable income for 2009, so I'm keeping careful but non-political notes on changes, with explanations. I have "cut back to spend more time with my family" (true and a wonderful bonus but not the driving reason) and have almost daily journal entries showing where my time and money go. I don't barter, not even untraceable services, because I am carefully complying with the letter of the law. Just as I don't get into casual bar fights, I'm not willing to fight our government until I'm ready for a shooting war.
The answer depends on the disparate expectations of households and firms. If the voters are euphoric, then the election might cause a rightward shift in Aggregate Demand. Certainly a socialist like Obama could have been expected to increase government spending and a spendthrift like Bernanke could have been expected to increase liquidity. Either one would shift AD to the right.
But only if firms expected larger demand for their products would AS shift to the right. There has been absolutely nothing about the election or its aftermath to suggest a rightward shift in Aggregate Supply. In spite of decreases in both fuel prices and borrowing costs, firms are scared to death - as they should be. It’s true that productivity has increased, but no more than usually happens during a recession.
In short, if consumers and other demanders have bright expectations but businesses don’t, AD shifts to the right, AS doesn’t, and prices rises with little change in real GDP. If the chilling effect on business is strong (and it sure looks like it is to me), then AS would actually shift to the left and we would see Carterian stagflation.
The fun part starts when Bernanke wakes up and tightens credit. Then we get a double-dip on the roller coaster. If Obama decides to make good on a campaign promise to his union buddies and indexes minimum wage, then he institutionalizes spiraling inflation. In that case, welcome to the Weimar Republic.
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