Faculty Advisor

Garrett Milam

Area of Study

Arts, Humanities and Social Sciences

Publication Date

Summer 2022

Abstract

The ongoing microchip shortage was caused by several factors from an economic perspective, both supply-side and demand-side. These included COVID-induced factory shutdowns, differing inventory management strategies, recurring government stimulus checks, and volatile supply chains. I used the Aggregate Supply/Aggregate Demand model from macroeconomic theory in order to characterize the microchip industry and its many runoffs (transportation, personal electronics, etc.) as an aggregate in order to study their impacts on big-picture variables such as real GDP and inflation. Federal Reserve Economic Data shows some correlation between the Producer Price Index (PPI) for semiconductors and the Consumer Price Index for Urban Goods (a way of measuring relative, non-rural inflation over time). In addition, current monetary policy strategies for inflation that omit changes in the money supply and instead focus on interest rates. Therefore, inflation management strategies that increase interest rates would best be paired with domestic incentives such as subsidies to firms producing on U.S. soil.

Publisher

University of Puget Sound

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