Aggregate Demand is the total demand in the economy. AD = C + I + G + (X-M) C= Consumer spending (Household consumption) I = Investment (gross fixed capital formation) G= Government spending (Government investment and Government consumption) X-M = Net Exports (exports – imports). Components of Aggregate Demand A graph showing components of AD …
If a large firm / industry becomes unprofitable and appears in terminal decline, what should the government do? If the firm goes bankrupt, it will lead to the loss of thousands of jobs, and negatively affect the areas where the firm is based. See: Problems of industrial decline. This creates a strong economic and political …
At different times there have been campaigns to ‘Buy British’ – patriotic efforts to support the economy. The campaigns seem quite popular, but usually fade out, having made little difference to major macro-economic variables. It is a form of economic nationalism and similar campaigns can be seen in many different countries. Buy British campaigns can …
Fiscal rules are attempts by the government to limit public sector debt and annual borrowing to certain criteria. For example, a simple fiscal rule might state a government should have maximum annual deficit of 3% of GDP. Alternative, the government may plan to run zero deficit over the course of the economic cycle. Generally, economists …
Readers Question – When a war brakes out in the middle east, the price of petrol rises, and the price 0f a used Ford Falcon falls why? When a war breaks out in the middle east, there is likely to be disruption to the supply of oil. 50% of our oil comes from the middle …
Readers Question: Which Financial Institutions are most exposed to a recession in the UK? A recession in the UK could hit several financial institutions quite hard. This is because of the nature of the current economic downturn which is likely to be focused around the previously booming housing market and service sector. In the 1981 …
Readers Question: Economic theory says that when Quantity (Q.S) increases Price (P) should ordinarily fall. After the 2007 crisis in the USA, the FED pumped billions of Dollars into the economy through QE. However the price of dollars, interest rate has not only fallen lower, but is closer to zero as of today ( 2016). …
I found this old video I made in 2008 about Keynesian economics. It’s OK for a basic introduction to some elements of Keynesian economics. 2008 was a pivotal year for economics because it marked a sharp break from much of the post-war economic cycles. 2008 broke the long-period of economic expansion, with growth falling below …