The Sahm rule is a way of predicting a recession from changes in the unemployment rate. “(The) Sahm Recession Indicator signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to its low during the previous 12 months.” (Sahm Rule) …
This occurs when a firm or consumer has no option but to accept the price set by the market. When a firm is a price taker – it means they have no ability to set a price that they would like to charge. A price taker will lack market power. Conditions for being a price …
Recessions (a fall in real GDP) are primarily caused by a fall in aggregate demand (AD). A demand-side shock could occur due to several factors, such as A financial crisis. If banks have a shortage of liquidity, they reduce lending and this reduces investment. A rise in interest rates – increases the cost of borrowing …
Definition of stagflation Stagflation is a period of rising inflation but falling output and rising unemployment. Stagflaton is often a period of falling real incomes as wages struggle to keep up with rising prices. Stagflation is often caused by a rise in the price of commodities, such as oil. Stagflation occurred in the 1970s following …
Game study is the study of strategic interaction where one player’s decision depends on what the other player does. What the opponent does also depends upon what he thinks the first player will do. Dominant strategy – when one choice gives better result than other Nash equilibrium – where each player has nothing to gain …
A definition of the law of demand and explanation of why higher price leads to lower demand.
The demand for a good depends on several factors, such as price of the good, perceived quality, advertising, income, confidence of consumers and changes in taste and fashion. We can look at either an individual demand curve or the total demand in the economy. The individual demand curve illustrates the price people are willing to …
Consumption is the purchase of goods and services for the acquisition of current utility. Investment is expenditure on capital goods for the acquisition of future utility. Investment increases the capital stock. Examples of the difference between consumption and investment A householder buys a car so that they can travel around to work and leisure activities. …