What's it? An adverse economic shock is a sudden, unexpected, and dramatic change in aggregate supply and demand that hurts the economy. For example, shocks result in high and uncontrollable inflation or a recession. In other cases, they give rise to
Macroeconomic Equilibrium
Economic Shocks: Disrupting Growth and Stability [Causes and 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: Achieving Full Potential
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: 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
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
Invisible Hand: Theory, Mechanism, Criticisms and Modern Role
The invisible hand is a powerful metaphor in economics, representing the unseen forces that guide a free market toward an equilibrium. Imagine millions of individuals and businesses making independent decisions, yet somehow, the market magically
Macroeconomic Equilibrium: Short Run Vs. Long Run
What's it? A macroeconomic equilibrium occurs when aggregate supply equals aggregate demand. Aggregate supply represents the total output of goods and services produced by firms within an economy at a given price level. On the other hand, aggregate
Full Employment: Understanding the Ideal Economic State
Imagine an economy where everyone who wants a job can find one. This ideal state, known as full employment, represents a healthy economic balance with maximized productivity and minimal unemployment. However, achieving and maintaining full employment
Business Cycle: Understanding the Economy’s Ups & Downs [Phases and Characteristics]
The business cycle, the ever-present rhythm of economic rise and fall, is a fundamental concept for anyone seeking to understand the health of a nation's economy. This cyclical pattern, with its periods of expansion, peak, contraction, and trough,
Aggregate Supply: Understanding Production Capacity in the Economy + Determinants
What it's: Aggregate supply (AS) is an economy's total goods and services. It behaves differently in the very short run, short run, and long run, each with a different elasticity. Short-run aggregate supply determines actual real
Very Short-Run Aggregate Supply: Definition and Reason Its Horizontal Curve
What's it: Very short-run aggregate supply refers to the aggregate supply in which firms change the output to a limited extent without changing prices. In this period, prices and most production costs are fixed, so firms can only adjust their