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 …
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 …
Demand management policies are efforts to influence the level of aggregate demand (AD) in an economy. The two main types of demand management policies are: Monetary Policy Fiscal Policy To some extent, the exchange rate could be used to influence aggregate demand, but in practice, it is rarely used as a tool to influence aggregate …
Aggregate supply is the total value of goods and services produced in an economy. The aggregate supply curve shows the amount of goods that can be produced at different price levels. When the economy reaches its level of full capacity (full employment – when the economy is on the production possibility frontier) the aggregate supply …
Readers Question: How does a current account surplus change demand in an economy? A current account surplus means that the value of exports is greater than the value of imports (of goods and services). Net exports is a component of Aggregate demand. (AD) = C+I+G+(X-M). Therefore a current account surplus means that the net exports …
Readers Question. Explain how interest rates could be used to boost the economy. Why, then do the govenment frequently hesitate to take such steps. Interesting Question. Generally, lower interest rates help increase consumer spending, investment and economic growth. Lower interest rates help increase Aggregate Demand for various reasons. Lower interest rates make borrowing cheaper encouraging …
Latest figures on UK National Debt. What National Debt is. Why National Debt is increasing?
Inflation is a situation of rising prices in the economy. A more exact definition of inflation is a sustained increase in the general price level in an economy. Inflation means an increase in the cost of living as the price of goods and services rise. The rate of inflation measures the annual percentage change in …