America by the numbers: How voters feel about the economy, inflation, AI and Trump
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Economic growth and the business cycle, Demand-pull inflation, Unemployment and the labour market
What happened
With U.S. midterm elections approaching, the report says Americans are almost as pessimistic about the economy as they were when the country was just coming out of the pandemic.
The economics
This example illustrates the confidence and expectations channel of the business cycle: when households feel gloomy about the economy, they tend to cut spending and postpone large purchases, which lowers aggregate demand and, through the multiplier, can amplify effects on output and employment. Students can trace a leftward shift in aggregate demand caused by falling consumer confidence and its knock-on effects on output and prices.
Evaluation
However, survey sentiment is subjective and may not match actual economic data; the gloom could also stem from prices, jobs or political factors, so this single indicator cannot show whether the economy is truly entering a downturn.
Practice question
Using consumer confidence and actual economic indicators, discuss why public perceptions of the economy may differ from official data, and analyse how such pessimism could affect aggregate demand and employment.
Read the article ↗ · Draw the diagram in the Diagram Lab
Where it fits in the syllabus
- Economic growth and the business cycle: Long-run growth in real GDP and the short-run swings between expansion and recession, when output falls below potential.
- Demand-pull inflation: Aggregate demand grows faster than the economy can supply, pushing the general price level up.
- Unemployment and the labour market: People willing to work who cannot find a job; it can be cyclical, structural or frictional.
- IB Economics: Measuring Economic Activity, Aggregate Demand and Supply
- A-Level Economics: Macroeconomic Objectives, Aggregate Demand and Supply
- AP Macroeconomics: Economic Indicators and Business Cycle, National Income and Price Determination
- AP Microeconomics: Factor Markets and Income Distribution
- IGCSE Economics: Macroeconomic Objectives