ECONOMIC GROWTH BY AGGREGATE SUPPLY AND DEMAND SHIFTS

ECONOMIC GROWTH BY AGGREGATE SUPPLY AND DEMAND SHIFTS

Economists and economic enthusiasts use economic growth as their economic indicator of an economy that is doing well. Every country strives to create an economy that does good for its people. Instabilities of the world lead to shifts in economic growth and cause destabilization in a country’s economy. Economic variations result from constant shocks to aggregate supply or aggregate demand of a nation.

What are the different effects of aggregate demand-based growth and aggregate supply-based growth?

An aggregate demand-based growth results in short-run and long-run profits. Short-run periods of benefits result from an increase in price levels. Prices of their resources remain level while they sell the products at a higher rate resulting in a robust profit. In the long-run, a permanent change in the production, employee skills and technology advancement increases long-lasting benefits. A rightward shift of aggregate demand also results in an increase in employment rates by increased production (Blanchard, 2017). Aggregate demand strategies of economic growth also cause adverse effects of inflation in the short-run period of price level increase. Economists also assert that shirt run periods may run for a long time risking a nation the adverse effects of inflation. A shift to the right of supply-based growth results in positive economic growth while a change to the left results in negative economic growth and a deterioration in the standards of living. Long-run shifts in the aggregate supply only cause temporary effects on an economy’s output.

What may shift aggregate supply to the right? Thoroughly explain its process.

The aggregate supply curve shows the positive relationship between the total price level and the output of supplies (Krugman and Wells, 2018). A rightward shift to the right of aggregate supply results from a shock from several economic factors. The shift indicates an increase in aggregate supply, which results in a fall in prices (Froyen, 2014). An increase in the capital stock, including monetary capital, human capital, and natural resources, results in a drop in prices which increases the supply capacity of an economy. Improved size and quality of labour is another factor that shifts the aggregate supply curve to the right. Tax cuts, for example, increase consumptions rates, therefore, increasing the supply (Froyen, 2014). Improvements in productivity such as low taxation and technology advancement also result in a significant drop in prices which increases the number of services and goods production.

As a policymaker, would you prefer the strategies of aggregate supply-based economic growth or aggregate demand-based growth? Why or why not?

I prefer aggregate demand-based growth strategies. The policies are effective and account for both short and long-term profits that cultivate economic growth. An assessment of the demand for goods and services that the country produces dictates the rate of production and supply. This assessment prevents flooding of products and supplies and wastage of resources to educate and equip the students with skills that may not be needed.

As a proponent of either aggregate supply-based growth strategies or aggregate demand-based growth strategies, what would you recommend for the current U.S. economy to achieve stable economic growth?

The U.S economy has implemented demand-based growth strategies for a long while. The strategy helped the nation dig itself out of the economic recession period of 2007-2009. I would, therefore, recommend the aggregate demand-based growth strategies known for its ability to revive economies and forge a nation towards economic stability.

References.

Krugman, P. R., & Wells, R. (2018). Macroeconomics. New York Worth Publishers.

Froyen, R. T. (2014). Macroeconomics : theories and policies. Pearson.

Blanchard, O. (2017). Macroeconomics. Pearson Education Limited.

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