Unemployment and Its Effect on Aggregate Supply Essay

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Unemployment and its Effect on Aggregate Supply and Demand:

The Obama administration is looking for ways to create jobs and stimulate growth after temporarily setting aside the debt limit. The need for job creation and stimulating economic growth originates from the high unemployment that the country experiences. This high unemployment rate is an actual reflection of the serious shortfall of aggregate demand in the United States. The U.S. unemployment rate is high essentially because the country's economy is generating below its capacity. Actually, while the U.S. economy has made some gains from time to time, its real GDP is estimated at 6% below its trend path or capacity.

There are various reasons attributed to the high unemployment rate including its consideration as a consequence or outcome of the collapse of demand rather than a distinct, instantaneous problem. Some of the reasons attributed to the unemployment problem in the United States include the fact that it's regarded as a consequence of the deficient demand, a structural problem, and a cyclical issue.

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As the United States continues to experience high rates of unemployment, this economic factor will continue having significant impacts on aggregate supply and demand. Aggregate demand can basically be described as spending by homes, businesses, and governments for the utilization of goods and services (Bartlett, 2011). This concept can also be defined as investments in machinery, structures, and equipment. The high unemployment rate contributes to low aggregate supply and demand because it reduces the aggregate income, which makes it difficult for households and businesses to increase their spending (Bartlett, 2011).

In order to deal with the high unemployment rate, the president should consider a raft of measures including increasing the aggregate spending by direct employment of workers or carrying out public works projects. Secondly, the government should focus on debating and finding the right policy for raising aggregate demand instead of increased focus on debt limit policy. This is mainly because lack of aggregate demand or inadequate consumption of goods and services is the main problem that….....

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