Aggregate Expenditure Model
- Review the rubric to make sure you understand the criteria for earning your grade.
- Read the following information from the US Federal Reserve “Beige Book” for September 2, 2020. As you read, think about how spending by consumers, companies, and the government may affect each other.
Overall Economic Activity
Economic activity increased among most Districts, but gains were generally modest and activity remained well below levels prior to the COVID-19 pandemic. Manufacturing rose in most Districts, which coincided with increased activity at ports and among transportation and distribution firms. Consumer spending continued to pick up, sparked by strong vehicle sales and some improvements in tourism and retail sectors. But many Districts noted a slowing pace of growth in these areas, and total spending was still far below pre-pandemic levels. Commercial construction was down widely, and commercial real estate remained in contraction. Conversely, residential construction was a bright spot, showing growth and resilience in many Districts. Residential real estate sales were also notably higher, with prices continuing to rise along with demand and a shortage of inventory. In the banking sector, overall loan demand increased slightly, led by solid residential mortgage activity. Agricultural conditions continued to suffer from low prices, and energy activity was subdued at low levels, with little expectation of near-term improvement for either sector. While the overall outlook among contacts was modestly optimistic, a few Districts noted some pessimism. Continued uncertainty and volatility related to the pandemic, and its negative effect on consumer and business activity, was a theme echoed across the country.
Employment and Wages
Employment increased overall among Districts, with gains in manufacturing cited most often. However, some Districts also reported slowing job growth and increased hiring volatility, particularly in service industries, with rising instances of furloughed workers being laid off permanently as demand remained soft. Firms continued to experience difficulty finding necessary labor, a matter compounded by day care availability, as well as uncertainty over the coming school year and jobless benefits. Wages were flat to slightly higher in most Districts, with greater pressure cited among lower-paying positions. Some firms also rescinded previous pay cuts. Others, however, have looked to roll back hazard pay for high-exposure jobs, though some have chosen not to do so for staff morale and recruitment purposes.
Price pressures increased since the last report but remained modest. While input prices generally rose faster than selling prices, they were moderate overall. Notable exceptions included inputs experiencing demand surges or supply-chain disruptions, such as structural lumber, for which prices spiked. Several Districts also reported that costs for personal protective equipment and inputs to it remained elevated. Freight transportation rates rose in several Districts due to a resurgence in demand. In contrast, contacts in multiple Districts cited weak demand or lack of pricing power as a factor behind slower growth in retail or other selling prices.
- Navigate to the threaded discussion below and make a post that answers the following:
- Based on the above information from the Federal Reserve, explain where you believe the country is at this point in the Business Cycle – peak, recession, trough, or recovery. Explain your rationale for such a description.
- Relative to the Aggregate Supply and Demand Model for the US, explain in your own words where you believe aggregate supply and aggregate demand are relative to a desired “equilibrium” for the economy.
- What might explain some of the “price pressure” alluded to in the Federal Reserve information. Is it demand driven, supply-driven, or both?
- The Federal Reserve’s narrative hints at a strong housing market, and consequently, much higher lumber prices. Research some credible sites to glean why the housing market could be so strong in the midst of a pandemic and explain with sound narrative.
- Your initial post should be 400 to 600 words in length and include two academic sources that are properly cited. It is due by the end of the fourth day of the workshop.
- Now conduct a critical analysis of a posting by two of your classmates by the end of the workshop. The topic of your discussion response should be your classmate’s posting and should be written as if you were reviewing his/her posting in an academic journal. Your discussion response should, therefore, answer the following questions as applicable:
- Were your classmate’s arguments articulate and logical? Were the facts correct?
- Was the interpretation your classmate provided reasonable and consistent with experts in the field? Was your classmate consistent with both the substance and intent of his/her references?
- The focus for your critical analysis is not whether or not you agree with your classmate, but how well his/her position was presented. Each response should be at least 200 words in length and cite two academic sources. Please strive to make your discussion responses ones that cause iron to sharpen iron.