The demand caused recession is primarily triggered by fall in the aggregate demand i.e. APE. This might be caused due to a fall in the purchase of household goods, and business demands due to increase in taxes and the spread on the notion that the future times would be bad. …
Download file to see previous pages...
The response to the increase in APA is depicted in the figure below.
The line is seen to shift leftwards and repositions the IS line such that the IS curve and the APE line continue intersecting at the original GDP line. Since the decrease in need for funding the APA is matched with an increase in the funding by the nation’s producers, hence the requirement for funding remains equal to the ASF supply. The present situation is APE< GDP = ASF. There would a response from the producers by decreasing unemployment, reduction in prices and output. This will make the ASF line to move rightwards and the GDP and APE line to move leftwards. The economy attains a position which is shown in the figure. This process generates negative economic projects. The shrinkage in industries responding to the negative profits helps the economy move into a position of long run sustainable equilibrium (Ashby, “Case #4 – Demand-Caused Recession”).
This case is just opposite to the above case where there is decline in the funding supply (ASF). All decreases in the ASF includes a reduction in M x V in comparison to the price index (p). During the phase, the rates of interest would be rising, tracking the point of intersection of ASF and GDP lines as they move up across the IS line. The rates of interest would remain below its original level unless and until substantial concessions on costs are able to allow profitable operations at low prices which consequently compensate for the loss in output and unemployment. The fall in the supply of funds of the country (ASF) would trigger a dramatic rise in the interest level because producers would react to the fall in sales. This would be done by the price-output adjustment which involves deflation, output, employment, interest rates and profits, until the equality is restored among the ASF, APE and GDP lines. Output and employment are expected to continue declining unless and until profits and prices rise to their original levels. The process will end with the fall in employment and output levels, rise of interest rates and thus unchanged outputs and profits (Ashby, “Case #5m – Money-and-Credit-Caused Recession”). The figure below would depict the cost push inflation. Due to a wide spread increase in the costs of production, the profit levels, employment levels and output levels would fall. This would be accompanied with the rise in the interest levels in the nation. The employment and output would continue to fall unless and until the negative economic profits can be eliminated completely and successfully. This would happen by allowing the reduction of output till the level that prices rise by the amount equal to the increase in cost (Ashby, “Case #5c - Cost-Push Inflation”). Growth problem in the economy can be explained in the diagram below. It is seen from the diagram that an increase in the output would be followed by an increase in the rates of interest. Producers would immediately react to the low demand in the economy. The rates of interest would fall along with the employment and output levels until they reach their original positions. Since the initial fall would be compensated by an offsetting rise in price levels, they would be maintained at the original positions. After returning to the original position, the economy would suffer a shock which would push down the levels of output, employment and rates of interest below their original positions leaving the price levels at their unchanged positions (Ashby, “
...Download file to see next pagesRead More
Cite this document
(“Micro & Macro economics Essay Example | Topics and Well Written Essays - 2500 words”, n.d.)
Retrieved de https://studentshare.org/macro-microeconomics/1390426-s318-4
(Micro & Macro Economics Essay Example | Topics and Well Written Essays - 2500 Words)
“Micro & Macro Economics Essay Example | Topics and Well Written Essays - 2500 Words”, n.d. https://studentshare.org/macro-microeconomics/1390426-s318-4.
The comparison is carried out between these two factors. In the ratio of Ann’s to peter’s case, Ann has a lower utility function than peter because peter is on medication. The amounts that peter will spend on medication makes him more vulnerable in spending.
The public’s demand for the two company’s products and services generated projected gains. Before the merger, several financial analysts opined that the proposed merger would be very successful (Baumol, 2011). Many quarters predicted the business after the merger will be rosy.
The demand side of the market comprises of the owner and the renter while the supply side comprises of the developer as well as the renovator. In order to analyze the demand and the supply factors a number of modifications need to be implemented in the microeconomic assumptions.
One of the significant areas of economics especially is macroeconomics which is a branch of economics that deals with the problems of a particular country or economic region comprised of several economic agents acting with their individual economic behaviors and the evaluation of the policies taken by the government of these countries in order to tackle those problems (Adams, 2002, p.
vaccinations against infectious diseases). Briefly suggest how government might intervene to correct this under-provision? 5 (C) The Consumer Price Index (CPI) is the official measure of inflation in the United Kingdom. Why might CPI not be an accurate measure of the costs of living for any given individual consumer?
Macro & Micro economics Introduction China is one of the fastest growing economies in the world. Being the second-largest economy, China has shown tremendous growth in the last three decades. According to the estimate of 2012, China’s GDP is US $12.38 trillion (CIA, 2013).
Name: Student Number: Short Essay: Macro & Micro Economics 1. Write a paragraph explaining why a “technology-based” water pollution-control standard might not be the most economically efficient (or cost-effective) way to achieve a given level of reduction in water pollution.
The product can be protected by a patent which the company can utilize for many year before it becomes available to the rest of the industry. Kodak and xerox dominated the market for many years in this manner.
Also, a company can build brand value or brand equity