Consumer spending fell significantly at the start of the pandemic by 13.6%, but increased by 5.6% in June.  Economists are predicting that in the next few months consumer spending may be positive but at a much lower rate than 5.6% as additional money for unemployment is no longer available, unemployment remains high, and uncertainty of the future.  Consumer spending is closely watched since it is a primary predictor of how quickly the economy will recover from the current recession.  How do you expect consumer spending might change over the next few months?  Why?  How has your spending been changing?  Are you expecting to make any big purchases in the near future?

RISING FOOD PRICES DUE TO RUSSIA-UKRAINE CONFLICT When Russia invaded Ukraine in February 2022, no one knew how long the conflict would last, or how deep the impact would be for Europe or the rest of the world. As the war approaches its third month, the outlook from the conflict does not look good. Against an already global inflationary pressures due to rising food and energy prices and disrupted supply chains following the coronavirus pandemic (Covid-19), the war between Russia and Ukraine is increasing supply and demand tensions, affecting consumer sentiment and global economic growth. The World Bank and International Monetary Fund (IMF) expected supply shocks to increase dramatically for commodity prices in cases where Russia and Ukraine are major suppliers. Russia is a major supplier of oil, gas, and metals, and, together with Ukraine, of wheat and corn. Reduced supplies of these commodities have driven their prices up sharply. The impact of the war in Ukraine was already slowing…

We can analyze the macroeconomic effects of Hurricane Katrina using the aggregate supply (AS) and aggregate demand (AD) diagram. The horizontal axis measures real GDP, a measure of the nation’s output that removes the effects of inflation. The vertical axis measures the price level (the average level of output prices).   Consider Katrina’s effect of “cost shocks” – unexpected changes in the prices of important inputs (assume LRAS is unchanged). For example, Katrina unexpectedly choked off oil, natural gas, and refined gasoline supplies from the Gulf region, placing upward pressure on energy costs. The hurricane also shut down factories and businesses, reducing the nation’s productive capacity. Therefore, the effect of the higher energy prices and reduced productive capacity is to shift the __________ curve(s).   Consider how the government’s fiscal policy response affects the economy. Recall that both individual consumers’ purchases and government purchases are included in aggregate…

Do supporters of the Keynesian perspective generally prescribe a hands-off approach to managing the economy, or support an active role for the government in managing the economy? Why? (12.4)