What's it: A supply shock is a sudden and unexpected event causing 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
Macroeconomics
Long-Run Aggregate Supply: Its Curve And Influencing Factors
What's it: Long-run aggregate supply (LRAS) refers to the total output produced in the economy when all inputs are variable. Wages and other inputs are flexible and change proportionately in response to changes in the price level. Thus, firms
Consumer Spending Patterns: Influencing Factors
What's it: Consumer spending patterns are changes over time in the total money individuals spend on goods and services for personal use. It also refers to the relative proportion of what an individual consumes. Comparisons may be based on time
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,
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.
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
How Do Economists Measure Economic Activity?
Economists measure economic activity using several approaches, namely income, expenditure, and output. All three will produce an equal number. How do all three approaches produce an equal number? Economists use circular flow diagrams (also known
Cyclical Budget Deficit: Causes, How it Works, Impacts
What's it: A cyclical budget deficit is when government spending exceeds government revenue, and it occurs due to economic conditions. In other words, the deficit occurs due to the ongoing economic cycle. For example, it increases during a