by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How are Net Exports a Part of Aggregate Demand? Recall that exports are domestically produced products that sell abroad while imports are foreign produced products that consumers purchase domestically. Since we define aggregate demand as spending on domestic goods and...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Government Spending as a Part of Aggregate Demand? The third component of aggregate demand is federal, state, and local government spending. Although we usually view the United States as a market economy, government still plays a significant role in the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Investment Expenditure? We call spending on new capital goods investment expenditure. Investment falls into four categories: producer’s durable equipment and software, nonresidential structures (such as factories, offices, and retail locations), changes in...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Consumption Expenditure? Consumption expenditure is spending by households and individuals on durable goods, nondurable goods, and services. Durable goods are items that last and provide value over time, such as automobiles. Nondurable goods are things like...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Recessionary and Inflationary Gap? Keynes argued that, for reasons we explain shortly, aggregate demand is not stable—that it can change unexpectedly. Suppose the economy starts where AD intersects SRAS at P0 and Yp. Because Yp is potential output, the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Keynesian Perspective of Aggregate Demand? The Keynesian perspective focuses on aggregate demand. The idea is simple: firms produce output only if they expect it to sell. Thus, while the availability of the factors of production determines a nation’s...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are the Keynesian, Intermediate, and Neoclassical Zones in the Aggregate Supply Aggregate Demand Model? We can use the AD/AS model to illustrate both Say’s law that supply creates its own demand and Keynes’ law that...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What causes Growth and Recessions in the Aggregate Demand – Aggregate Supply Model? In the AD/AS diagram, long-run economic growth due to productivity increases over time will be represented by a gradual shift to the right of aggregate supply. The vertical line...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is Aggregate Supply and Aggregate Demand in Macroeconomics and Microeconomics? Confusion sometimes arises between the aggregate supply and aggregate demand model and the microeconomic analysis of demand and supply in particular markets for goods, services, labor,...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Equilibrium Point for Aggregate Supply and Demand? The intersection of the aggregate supply and aggregate demand curves shows the equilibrium level of real GDP and the equilibrium price level in the economy. At a relatively low price level for output,...
