Aggregate Demand and Supply Models - Essay Example

Analysis and Recommendation of Unemployment and Expectation in the U.S Analysis and Recommendation of Unemployment and Expectation in the U.SUnemployment rates in the U.S measure the number of people actively seeking for employment as a percentage of the existing labor force. The rate has been decreasing since last year. For example, the rates were 7.3% in October 2013 but have decreased to 5.9 as at September 2014. The table below shows the trend in unemployment.Unemployment affects the level of individual income.

An increase in unemployment reduces disposable income that hence reduces demand for goods and services. Firms can however hire from the increased pool of unemployed at low wage rate and hence achieve increased production which means an increase in supply (Boyes & Melvin, 2013). A change in the rate of unemployment will hence result to a change in the demand and supply hence affecting the equilibrium market.People form expectations about prices; quantity supplied and inflation based on previous information.

If individuals expect a shortage of goods, they will increase demand to store the goods for the scarce season. Sellers will however hold the goods and hence reduce supply since they anticipate increased costs during the scarce period. The same happens in case the customers and sellers expect an increase in prices (Tucker, 2010). Use of past information to form expectations is not efficient as it may result to wrong predictions hence affecting the equilibrium market negatively.Unemployment and expectations hence affect the aggregate equilibrium between supply and demand.

The government should, therefore, develop measures to influence this non-price factors affecting demand. The economy will hence operate at equilibrium by avoiding surpluses or scarcity.ReferencesBoyes, W. & Melvin, M. (2013). Macroeconomics, 9th Ed. Mason, OH: South-Western Cengage Learning.Tucker, I. (2010). Macroeconomics for Today, 6th Ed. Mason, OH: South-Western Cengage Learning.