In macroeconomics, consumption expenditure affects the economy through aggregate demand. Economists include it as an item in aggregate demand in addition to business investment, government spending, and net exports. Thus, when consumption expenditure
Macroeconomics
How Does Unemployment Impact Individuals, Society, Businesses, and the Economy?
Unemployment has wide impacts. It doesn't just have consequences on the individual. But it also impacts society, business, and the economy. For example, unemployment causes:Unemployment impacts individualsOne of the most immediate
Short-Run Macroeconomic Equilibrium: Understanding Economic Fluctuations
What's it: A short-run macroeconomic equilibrium occurs when the aggregate demand curve and the short-run aggregate supply curve intersect. It determines the actual output (real GDP) and the price level in the economy.Equilibrium may be
The Hidden Forces Affect How Much Consumers Spend [7 Determinants Explained]
Several factors affect consumer spending. Disposable income comes first. Without it, there is no income to buy the product. Other factors include consumer confidence, wealth, income expectations, inflation, and interest rates.Why is it necessary
Supply Shock: Disrupting Markets and Investment Strategies [+ Causes and Effects]
What's it? A supply shock is a sudden and unexpected event that causes a dramatic change in output. It can be positive or negative. It is positive if it increases output and negative if it decreases output.Shocks here can refer to macroeconomic
Long-Run Aggregate Supply (LRAS): Potential Output and Its Drivers
Long-run aggregate Supply (LRAS) is a fundamental concept in economics, revealing the maximum output an economy can produce when all its resources are fully adjustable. Unlike the short run, where some factors are fixed, LRAS reflects a situation
Consumer Spending Patterns: Why It Matters and What Drives It
What's it? Consumer spending patterns are changes over time in the total money individuals spend on goods and services for personal use. They also refer to the relative proportion of what an individual consumes. Comparisons may be based on time or
How Exchange Rates Affect Aggregate Demand and the Economy
Exchange rates affect aggregate demand through their effects on exports and imports. Specifically, it affects the relative prices of imported or exported goods and, ultimately, their competitiveness and demand. For example, appreciation makes the
How Monetary Policy Works Affects Aggregate Demand and the Economy
Monetary policy affects aggregate demand and the economy through the money supply. For example, an increase in the money supply increases liquidity in the economy. As a result, more credit is available, and interest rates fall. Finally, households
How Fiscal Policy Affects Aggregate Demand and the Economy
Fiscal policy affects aggregate demand and economic activity through taxes and government spending changes. For example, tax cuts increase aggregate demand and stimulate economic growth.Unlike businesses and households, taxes and spending changes
How Household Wealth Affects Aggregate Demand and the Economy
Household wealth influences the decision to spend money, impacting aggregate demand. This has a significant impact on the economy, especially where household spending makes a dominant contribution to GDP.In addition, the wealth effect may be more
How Do Economists Measure Economic Activity?
Imagine a country without any way to gauge its economic performance. How would policymakers know if the economy is growing, shrinking, or stagnant? How would businesses decide where to invest? The ability to measure economic activity is crucial for