Diagrams showing how shifts in aggregate demand (AD) and aggregate supply (AS) affect macroeconomic equilibrium – real GDP and price level (PL)
Includes short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) and classical and Keynesian view of LRAS curves.
This shows an increase in AD when the economy is close to full capacity, causing a significant rise in price level.
Movements in the stock market can be quite volatile and sometimes movements in share prices can seem divorced from economic factors. However, there are certain underlying factors which have a strong influence on the movement of share prices and the stock market in general. Generally, shares will be in greater demand when investors have the …
Definition of a free good. A free good is a good with zero opportunity cost. This means it can be produced by society in as much quantities as needed with little or zero effort.
Readers Question: When considering national economic policy government must accept that there is a trade-off between inflation and unemployment. Discuss. National Economic Policy will be concerned with these main macro economic objectives Sustained and sustainable economic growth Low Unemployment Low inflation (inflation target often 2%) Low current account deficit (satisfactory balance of payments) Stable Exchange …
Carbon trading is a system of limiting carbon emission through granting firms permits to emit a certain amount of carbon dioxide. The amount of permits is decided by the government, and then permits are given to firms depending on various criteria (such as how much output a firm produces) With the permits, a firm can …
During the years 1997-2007, there was a significant rise in government spending, though as a % of GDP the rise was less marked.
Source: ONS Public Sector Finances MF6U – October 2014
Government spending as a % of GDP
A more meaningful comparison is to look at the share of government spending as a % of GDP.
The large increase in government spending as a % of GDP in 2008/09 was a direct result of the deep recession. In a recession GDP falls, tax revenues fall and government spending on benefits rise.
Public sector debt
In 2007, UK public sector debt was close to a historical low (post-1914).
More detail at UK national debt
A more detailed graph of that period. Shows that public sector debt went from 42% of GDP in 1997 to 50% by 2010.
Readers Question: I’m a paper girl and I get £5.50 a week, 7 days a week, 2 rounds a day. Am I the only one that thinks this is a joke? From: Wages of Paper Boys It sounds a very bad deal. Paper rounds are not covered by statutory minimum wage laws, so wages are …
Readers Question: In finance and economics, there are such things as “bubbles” in the economy. And when bubbles start forming, it normally isn’t a good thing. My question is, how many different kinds of “bubbles” are there? Such as the property bubble or stock market bubble. And how do they form and what are their economic impacts?
Bubbles typically refer to a situation where assets or financial instruments see a rapid increase in price – an increase in price which is driven by speculative demand and are unsustainable in the long run. At a certain price, the bubble ‘bursts’ and prices come down to a level which more closely reflects the fundamental economic value. A bubble strongly implies that psychological factors such as irrational exuberance and over-confidence play a role in increasing the value of the asset.
House price bubble
Between 2000 and 2006, house prices rose 80% and house price to earning ratios rose above long-term averages. This was partly fuelled by a growth in mortgage lending to subprime customers. When interest rates rose a modest amount in 2004/05, the housing market started to turn and prices fell 2006-12.