Inflation is also one of the few economic concepts that is generally understood and watched by the lay public because when the general level of prices rises, people's wages can buy less and less of the goods and services that they need. Thus inflation can thus also be seen as a devaluation of the purchasing power of money. The inflation rate is an annualized rate that designates the percentage change over time in the general price index of an economy. (in the United States, this general price index is the Consumer Price Index.)
Aggregate demand is an important concept within macroeconomic theory. It designates the total demand within an economy for both services and goods at any given point of time and as assessed at a specific price level. This concept is also designated as the effective demand and can be seen as the total demand for the gross domestic product of an economy if inventory levels are being held at a static level.
When it is graphed, the aggregate demand curve always slopes downwards. This is not because of the fact that as prices fall the demand for a service or good grows. Rather, it is a much more complicated equation based on a convergence of different conditions of distribution of wealth, exchange rates, and interest rates.
Extra Credit Question: Discussion of money as a storage of value and as neutral.
However, it is also true that money as storage of value is a mechanism of inflation. Money can become disjoint from other types of values and so is more subject to manipulation. According to classical economic theory, money can be considered to be both neutral and a storage of value because the neutrality of money was originally conceived as a mechanism to direct the rate of interest, something that is not tied to inflationary or deflationary cycles. Later conceptions of this idea is that money is neutral in that change in the amount of currency in circulation (the amount, not its value) affects only certain parts of the economy.
This in turn is related to a dichotomous distinction that classical economists make between those aspects of the economy that are affected by actions of the central bank and those that are not and that can thus be conceived of as representing money in its neutral aspect.
aggregate expenditure model to explain the impact of the housing boom on investment and consumption spending. In order to determine the relation between the housing boom and the rise of prices, which are probably caused by greater demand in the housing sector, all factors which may produce shifts in the production function must be analyzed. The model proposed by Keynes suggests that each monetary unit spent on something must be
multipliers? The recent international economic emergency has brought transformed consideration to the inquiry of the convenience of government expenditures as a way of inspiring cumulative economic movement and employment throughout a slouch. Attention to fiscal incentive as an alternative has been very much augmented by the truth that in many nations the short-term nominal interest rate that is used as the main working target for financial policy has arrived at
Multiplier Thailand, like many third world countries, is interested in identifying the mechanisms by which economic growth may be achieved. Economic growth and more specifically 'rapid economic growth falls within the province of the mid-term and long-term macroeconomic policies (Dervis and Petri 1987, p. 211). Dervis and Petri, survey 20 'middle income' countries, in an attempt to identify the factors which contribute to successful development-which they identify as moderately rapid
Since G=T with a balanced budget, savings will still fall until I's again, but the expansion of government achieves the goal of replacing the shortfall in aggregate expenditures, albeit with new, higher taxes. In our case, the increased proceeds from taxes will have to amount to $30 million, in order to set-off the increase in government spending and to maintain the same GDP. The increase in government expenditures will fully
Liquidity Liquidity can be defined as the ability to convert an asset into cash quickly. In order to further explain, we can say that cash is the most liquid of all assets. With respect to financial assets liquidity is an important concept because the volatility of financial markets makes it an asset more valuable in the eyes of investor if its liquidity is high. If a particular asset is easily convertible
This holds that as "aggregate expenditures increased, it brought about a supply response from firms who increased output" (Colander 1995, pp. 174-175). Regarding both curves, even on an intuitive level, wages and prices are not perfectly flexible in the real economy, particularly in regards to decreases in price level. Deflation has not happened on a significant level since the 1930s, but both classical and Keynesian economic theories allow for
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