Increased government spending is likely to cause a rise in aggregate demand (AD). This can lead to higher growth in the short-term. It can also potentially lead to inflation. Higher government spending will also have an impact on the supply-side of the economy – depending on which area of government spending is increased. If spending …
The demand curve shows the amount of goods consumers are willing to buy at each market price. An individual demand curve shows the quantity of the good, a consumer would buy at different prices. Plotting price and quantity supply Market equilibrium More demand curves Related Factors affecting demand Demand …
Effective demand refers to the willingness and ability of consumers to purchase goods at different prices. It shows the amount of goods that consumers are actually buying – supported by their ability to pay. Effective demand excludes latent demand – where the willingness to purchase goods may be limited by the inability to afford it …
The demand curve shows the amount of goods consumers are willing to buy at each market price. A linear demand curve can be plotted using the following equation. Qd = a – b(P) Q = quantity demand a = all factors affecting QD other than price (e.g. income, fashion) b = slope of the demand …
Definition of ‘Animal spirits’ – Animal spirits refers to the confidence and the ‘gut instincts’ of businessmen on their future business prospects. It is a term coined by the economist John Maynard Keynes, who explained how the economic cycle could be volatile because of the changing ‘spirits’ of the businessmen involved. “Most, probably, of our …
When calculating elasticity of demand there are two possible ways. Point elasticity of demand takes the elasticity of demand at a particular point on a curve (or between two points) Arc elasticity measures elasticity at the midpoint between the two selected points:
Cross elasticity of demand (XED) measures the percentage change in quantity demand for a good after a change in the price of another. For example: if there is an increase in the price of tea by 10%. and the quantity demanded for coffee increases by 2%, then the cross elasticity of demand = 2/10 = …
Demand deficient unemployment occurs when there is insufficient demand in the economy to maintain full employment. In a recession (a period of negative economic growth) consumers will be buying fewer goods and services. Selling fewer goods, firms sell less and so reduce production. If firms are producing less, this leads to lower demand for workers …