- to spending, and if so whether this refers to a shock to
- household spending (consumption), including taxes
- business spending (investment)
- government spending
- foreigners' spending (net exports)
- to costs
- labor costs
- energy costs
- raw material costs, etc.
Make sure to say whether this is a shock to Aggregate Demand or to Aggregate Supply, and it what direction the curve would shift
- The AD curve shifts right if there's an increase in spending.
- The AS curve shifts up if there's an increase in costs.
Given your conclusion of the direction of the shift, identify what you think will happen to a) inflation and b) output. At this point it is useful to draw a graph, make the correct curve shift, and see what happens in equilibrium.
http://www.nasdaq.com/article/comscore-reports-november-us-retail-online-spending-rises-15-20121202-00012#.ULvvo4MqaAg
ReplyDeleteThis article is discussing November US retail online spending rising 15% from last year, with Cyber Monday being the heaviest online spending day in history—1.46 billion. This increase can be defined as a shock to household spending (consumption). This event effected the aggregate demand curve and caused it to shift to the right. Since this increase is seasonal, and typically peaking during the Thanksgiving/Black Friday promotional period, I doubt it will have any significant affect on inflation in the long run. It does, however, have an affect on output; but because this event is well known, its affects on output can often be seen before the actual event. For example, manufacturers will typically begin to demand more materials and produce more goods weeks before this big event. Additionally, many stores hire additional employees for the holiday season.
Consumer confidence is apparently increasing as the holiday season starts, according to Christopher Rugaber of Associated Press in Buffalo, New York. The only threat to consumer confidence is the approaching “fiscal cliff,” but even that does not appear to be on most peoples’ minds. As Rugaber puts it, “Rising home values, more hiring and lower gas prices pushed consumer confidence in November to the highest level in five years, and steady consumer spending appears to have encouraged businesses to invest more in October after pulling back over the summer.” The Conference Board’s consumer confidence index rose by about .6 to 73.7, the highest it has been since February 2008. Also to increase are home values and orders for capital goods. This information translates to a shift to the right on the AD curve, seeing as household and business spending have gone up.
ReplyDeletehttp://www.buffalonews.com/apps/pbcs.dll/article?AID=/20121128/BUSINESS/121129321/1005
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ReplyDeletehttp://articles.economictimes.indiatimes.com/2012-11-30/news/35483213_1_downgrade-fiscal-consolidation-moody
ReplyDeleteThis article talks about how France’s Central Bank has lost it’s AAA rating. The reason the the Central Bank has lost it’s triple A status is likely due to it’s ties with several failing countries such as Greece. The bank has large amounts of money invested in economically weak countries. The affects of losing a triple A rating is that other countries are lest likely to invest in your banks (capital inflow). This shock will likely decrease the amount of capital inflow coming into France, moving the agrregated demand line left.
timesofindia.indiatimes.com/business/india-busines/FMCG.costs/pmarticleshow/17436504.cms?prtpage=1
ReplyDeleteFast-moving consumer goods (FMCG) companies expect to gain little from lower input costs. Value growth going forward could be suppressed for the industry. The FMCG industry grew in the range of 12-14% but this can be affected by the inflation scenario.
Prices of many raw materials have stabilized. The major benefit that commpanies get when there is a decline in raw materials cost is an expansion of their margins. Companies can then invest in expanding their advertisement and sales. This is expected to translate into higher growth for the company.
This is a shock to aggregate supply with the curve shifting downward.
This article states that in the month of October there was a drop in consumer spending because of income growth stall. But the department of Commerce on Friday showed that consumer spending had decreased to 0.2% after a jump of 0.8% in September. Consumer spending affects a third of the economy growth. The reason for the jump of consumer spending on the month of September is partially because of higher gas prices, the new introduction of the new iPhone, and because of strong car sales.
ReplyDeleteA decrease in consumer spending is an affect to the aggregate demand curve. Because it is a decrease then there is a shift to the left. This also as a shock on inflation and out put, it causes for both inflation and output to decrease too.
http://money.cnn.com/2012/11/30/news/economy/income-spending/index.html?iid=SF_E_River
http://www.reuters.com/article/2012/12/03/cuba-economy-idUSL1E8N353U20121203
ReplyDeleteThe Cuban economy is growing 3.1 pct this year. Although this is substantial, the Cuban economy needs to grow at a rate of 5% in order to overcome the damage it experienced after the fall of the Soviet Union.
In order to increase growth, Raul Castro intends to limit government jobs and therefore spending. In turn, he will aid the people in finding retail and food service jobs, to increase the amount of jobs independent of the government and in turn increase consumer spending. These shocks will aid in the build up of small businesses, and in turn, aid the build up of the economy.
Although there will be a decrease in government spending, the increase in consumer spending will cause the Aggregate Demand Curve to stay the same at first, but gradually shift to the right as the economy strengthens. An economy that favors small businesses favors the people, and will bring about more consumer spending.
The article I read was about how Africa has been dealing with a major labor shock. This is because there are poor relationships among the laborers of Africa. This has caused the laborers to go on strike. Financially Africa is now having a hard time manufacturing. The industry that this is affecting the most is the mining industry. There is now a 6.8 percent drop against the dollar. This has caused consumer spending to go down and foreign spending to go down. I believe that it will increase business spending and government spending in order to make up the difference in the work lost. Labor, raw material, and energy costs have all gone up in order to make up for the workers not working. The AD curve will shift right and the AS curve will shift up, because there is both an increase to spending and costs.
ReplyDeletehttp://allafrica.com/stories/201211081370.html
http://www.bbc.co.uk/news/business-20598031
ReplyDeleteDue to Ireland's new budget, many should be expecting taxes to rise and spending to be cut. Spending cuts will mostly occur in health and social welfare sectors, while taxes are expected to increase a lot in property tax. Because of the International bale out it was under recently, the government there has made serious cuts in spending and is earning itself "the poster boy of the economic recovery in Europe." Making these tax cuts was very strenuous, but it is what is making Ireland have such a good economic comeback.
This will be a shock to the aggregate demand curve. The AD curve will shift to the left because there is a decrease in government spending. I believe because of these changes in the budget, inflation will go down and output will also go down in Ireland.
http://finance.fortune.cnn.com/2012/12/03/fiscal-cliff-stimulus/?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+Top+Stories
ReplyDeleteThis year there has been talk about this fiscal cliff is where new laws are put into effect this coming year there could be tax increases, and spending cuts. Some people are proposing that they pass a deal through congress. Maybe this would stimulate the economy and prevent it from falling in to this so called fiscal cliff. That’s what “Jason Thomas, director of research at private equity firm The Carlyle Group (CG).” said. This fiscal cliff is going to be definite shock to the country that will shift the aggregate demand curve to the right. It would do that because taxes are increasing.