(Schiller, 2010) For me, these insights are providing greater clarity about what actions must be taken to avert recessions. It is also illustrating how the headlines in the news media about government policies may not be completely accurate (i.e. The problems with the national debt). Instead, this is illustrating how these changes are a necessary outcome. That will help to stabilize the economy and prevent recessions from becoming worse. This is the key for avoiding downward spirals in economic activity and the negative long-term effects it will have on everyone's standard of living. (Schiller, 2010)

What has been happening to consumer confidence over the last six months? What explanation for consumer confidence does the memo give?

In the last six months, consumer confidence has remained volatile. This is because there have been concerns about the impact of the fiscal situation in Washington and the high number of people who continue to have trouble finding work. These issues have caused figures to remain very unstable. Evidence of this can be seen with them coming in between 58.4 and 76.9. This is indicating that confidence has been somewhat uneven during this time. ("United States Consumer Confidence," 2013) ("The Conference Board's Consumer Confidence Index," 2013) ("The Conference Board Economic Forecast," 2013)

The analysis is showing how the increase in the payroll taxes and the slowdown in government spending have caused economic activity to decelerate in the last several months. However, the automobile and housing sectors are seeing considerable signs of resilience. This is because of favorable policies with Federal Reserve keeping interest rates at low levels. The strategy has made it easier for consumers to make large big ticket purchases (which are increasing their underlying levels of confidence). This has created a situation where different headwinds are impacting economic growth. ("The Conference Board Economic Forecast," 2013)...

As a result, these variables have caused the consumer confidence numbers to become more volatile in the process. ("The Conference Board Economic Forecast," 2013) ("The Conference Board Economic Forecast," 2013)
What component of aggregate demand (AD) is affected by consumer confidence? Is this likely to have a large impact on AD? Why or why not?

The biggest component of aggregate demand which is impacted by consumer confidence is spending. This is having ripple effects on various segments of the economy. The reason why is because if consumers do not feel comfortable with economic growth going forward. They are more than likely to curtail spending in these areas until there are greater amounts of clarity about the future. This is when they will increase their expenditures. ("The Conference Board Economic Forecast," 2013) (Schiller, 2010)

For businesses, these changes will lead to them increasing or reducing the number of people they are hiring. This will affect the unemployment rate and how good consumers feel about the future. It is at this point, when they will spend more or less money on different items (depending upon these perceptions). ("The Conference Board Economic Forecast," 2013) (Schiller, 2010)

References

The Conference Board's Consumer Confidence Index. (2013). Conference Board. Retrieved from: http://www.conference-board.org/data/consumerconfidence.cfm

The Conference Board Economic Forecast. (2013). Conference Board. Retrieved from: http://www.conference-board.org/pdf_free/economics/2013_05_151.pdf

United States Consumer Confidence. (2013). Trading Economics. Retrieved from: http://www.tradingeconomics.com/united-states/consumer-confidence

Schiller, B. (2010). Essentials of Economics. New York, NY: McGraw-Hill / Irwin.