Economy aggregate supply and demand

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Assume that the following information about the economy is correct. The potential GDP is 3 percent. Real GDP has fallen at a minus two percent rate in the last 12 months (2007) but was growing at a 2.0 percent rate through most of 2006. The unemployed rate in 2007 is 7.7 percent up from 6.8 percent and has been in the neighbourhood of one percent for the post 12 months. Median short term inflationary expectations are averaging percent over the past year and long term inflationary expectations are average 1.5 percent in 2007. The leading indicators have been negative for the past six months. Payroll jobs are averaging -40,000 a month in 2007. Productivity growth has averaged 1.3% over the past 12 months, but was 0.5% in the last quarter. Capacity utilization was at 77% for most of 2006 and was 75 percent in the first six months of 2007. The dollar has strengthened by 10% on a trade- weighted basis over the past year; consumption spending has increased at a one percent level the past three quarters. The Employment Cost Index and hourly wages have increased at a 1.5% rate over the past quarters. Residential investments have decreased by 16% over the past year, but non residential business investment has increased by 6% in the last year. Federal Government ha increased by 5% over the 1st 12 months but state and local government spending has decreased by 10 Percent during that same time period. Based on the information given below, Please answer the following five questions.

1. Using business cycle terminology where is this economy in the business cycle?

2. Where is the economy on the aggregate demand and aggregate supply?

3. What are the strengths and weaknesses of this economy?

4. What changes would you recommended for aggregate demand or aggregate supply?

5. How would your firm be impacted by your suggested changes in aggregate demand and aggregate supply?

Reference no: EM1313764

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