Aggregate demand is the amount of goods and services in the economy that will be purchased at all possible price levels. It consists of the invesments, government spendings, consumption and the export minus income.
AD = I+G+C+(x-m)
The AD's biggest element is the consumption, since it is the largest figure.
Because the companies do not have confidence in political class in the US and also no confidence in the whole economy. Although the companies did well, taking a profit into account, the are not sure whether the finantial situation in States is stable. Therefore, enterprises did not hire new workers.
The US economy is the biggest in the world. Additionally, it is highly linked with the European countries economies. Therefore, the goings-on in America have such a big impact on Europe.
6) What action could the government and the Fed take to boost confidence in the US economy and stimulate economic growth? Can any of this be done without causing inflation?
Government should immediately declare a wilingness of implying some job support meassures. The Fed should pump some more money to the system, in order to stimulate the economy. Certainly, the general rule is that the higher employment, the higher inflation but this is a trade off, that the government has to take into account.
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