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This graph with some added data is a part of your post on the ABblog. Jack has pointed out that it is confusing to some.

I confess that it took me a minute or two to the find Real GDP blue dots and Effective Demand lines and then ignore the rest. (I was impatient and skipped straight to the graph!) But the truth is that everything in that graph is important except for the Aggregate Supply plot lines. And I assume that the AS lines would be more important to me if I needed a more complete view of the interactions in the economy.

Below your graph is this paragraph:
"The blue dots show real GDP increasing to the right over the past 8 quarters.The up-sloping lines are aggregate supply for real GDP for the given inflation rate. The down-sloping lines are effective demand. The down-sloping lines of the effective demand limit have stayed within a fairly tight band. Effective demand has fallen into this band 6 of the past 8 quarters."

Perhaps you should include in this paragraph, a link to your best explanation of effective demand on your website. That would seem to be preferable, to dumbing down your graph.

Frankly my understanding of Effective Demand came because of your early formulas, so I do not know how you would explain it without them. I suppose you will need a very good explanation of each variable and an emphasis on the direct or inverse relationships.

The explanation of the 2012 and 2013 Effective Demand plot line deviations is encouraging. Variation is troubling, if there is no explanation.

It is tough to have to explain effective demand every post. I suppose I have to do it.

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Data as of 3rdQ-2017
Effective Demand = $17.424 trillion
Real GDP = $17.157 trillion
Productive Capacity is rising to next business cycle = $23.558 trillion
UT index is falling= +1.1%
Effective demand limit = 73.9%
TFUR = 72.8%
ED Fed rate rule (down from a peak of 3.8% in 2014) = 2.2%
Estimated Natural Real Interest rate = 2.2%
Short-term real interest rate (fallen from 2.8% peak in 2014) = -1.7%

There is no recession for 3rdQ-2017. Chance of recession is growing as economy heads toward 2nd effective demand limit in this business cycle. I am forecasting economic contraction in 2018.

Click on Graphs below to see updated data at FRED.

UT Index (measure of slack):

The UT Index



z derivatives in terms of labor & capital:

z derivatives in terms of labor & capital

Effective Demand, real GDP & Potential GDP:

ED, real GDP & pot rGDP

ED Output Gap:

ED Output gap

Corporate profit rate over real cost of money:

Corp profit rate over real cost of money

Exponential decay of Inflation:

Corporate profits impact Inflation

Measures of Inflation:

Measures of Inflation

YoY Employment change:

YoY employment change

Speed of consuming slack: yoy monthly:

Speed of consuming slack

Speed of consuming slack: quarterly:

Speed of consuming slack quarterly

Real consumption per Employee:

real consumption per employee 2

Will real wages ever rise faster than productivity?:

Productivity & Real Wages

Real Wage Index:

real wage index



Productivity against Effective Demand limit:

Prod & ED limit

Bottom of Initial Claims?:

Initial claims

Tracking inflation expectations:

Fisher effect?

M2 velocity still falling:

Measures of Inflation

All in one:

All in one

Double checking labor share with unit labor costs & inflation:

My Photo
Edward Lambert: Independent Researcher on Effective Demand.
Some links for economic analysis
Fed Views - San Francisco Fed, around 10th of each month.
Well's Fargo monthly - around 10th of each month
Well's Fargo weekly
Well's Fargo Interest rate report
Well's Fargo Economic indicators
T. Rowe Price weekly market wrap-up
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