Boosting Supply Requires More Demand - Article Example

A routine of the GDP potential dropping has been linked to a financial crisis, which explains why the economy seems to be nearing its capacity despite it being far beneath its pre-crisis tendency. Therefore, the Fed should become more cynical when overwhelming evidence indicates the economy to be headed to capacity, by remaining easier in long run, which can help the GDP regain its potential as well as its inflation up to 2% (Greg, np). The article reveals the relationship between demand and supply in terms of the labor force by indicating that the workforce is not just a group of people but a function, which is a supply-side aspect.

On the other hand, the duration in which people have been unemployed which shows their useful skills presents the demand side aspect. In addition, in terms of business, an investment in new equipment not only affects the technological status, a supply-side aspect, but also the long-run expectations of sales, which is a demand-side aspect. Hence, the short-run demand directly influences the long-term supply. In conclusion, the Fed should be aware of its influence on demand and supply, whether on a short or long-term basis, which will help it to be in a better position to control the economy by setting policies that work effectively.