Investment, government spending, and exports are three injections in the economy. They contribute to increasing the demand for goods and services in the economy and, therefore, stimulate more job and income creation. What is injection? An
Aggregate Demand
Injections and Leakages in the Circular Flow of Income: Examples and Impacts
What's it: Injection and leakage illustrate how income in the economy does not flow entirely in a circular flow diagram. Leakages refer to withdrawals, for example, due to savings, taxation, and imports. They are withdrawn because income is not
Adverse Economic Shocks: Examples, Impacts, Solutions
What's it: An adverse economic shock is a sudden, unexpected, and dramatic change in aggregate supply and demand, hurting the economy. For example, shocks result in high and uncontrollable inflation. Or it causes a recession. In other cases, it
Economic Shock: Types, Causes, Impacts
What's it: An economic shock is a sudden and unexpected significant change in an economy's output due to changes in external factors. Shocks suddenly cause the aggregate supply curve or demand curve to shift to the right or left. Such events not
Long-Run Macroeconomic Equilibrium and Its Explanation
What's it: Long-run macroeconomic equilibrium occurs when the aggregate demand curve intersects the short-run aggregate supply curve at the point of the long-run aggregate supply curve. In other words, the short-run macroeconomic
Short-run Macroeconomic Equilibrium and Its Implications for the Economy?
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
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