Chapter 20

Chapter 20 is titled “aggregate demand and aggregate supply” and begins with the three key facts about economic fluctuations: 1. economic fluctuations are irregular and unpredictable, 2. most macroeconomic quantities fluctuate together, and 3. as output falls, unemployment rises. It continues by explaining short-run economic fluctuations, the aggregate-demand curve, why it slopes downward and why it might shift, the aggregate-supply curve, why it is vertical in the long-run, slopes upward in the short-run, and why it might shift, as well as how to use both to depict long-run growth and inflation. Finally it summarizes two causes of economic fluctuations which are the effects of a shift in aggregate demand and the effects of a shift in aggregate supply.

After this reading this chapter I believe that the current US economy, especially Colorado, is doing well because the inflation rate is very low as a result of many households converting their money into interest-bearing assets. This increases the quantity of goods and services demanded. The unemployment rate is also low, which means that outputs are high. I do believe that a recession will come soon, although fluctuations are irregular and unpredictable, if there continues to be more changes in public policy, especially concerning taxes which can cause shifts in the aggregate-demand curve. This causes people to be pessimistic of the government and to lower their expectations, which would lead to falling incomes and rising unemployment. This is why the government should appear strong and united, especially during times of change, because otherwise citizens will begin to question them. I don’t believe that the country is in danger of overheating because I believe there are options that the government and the Fed would institute before anything would seriously go wrong. Also in the long-run the shifts in aggregate demand will correct itself and although the price level would change, the level of output would not.