How IS and LM Curves Combine to Generate the Aggregate Demand Curve

Also known as the Hicks-Hansen model, the IS-LM curve is a macroeconomic tool used to show how interest rates and real economic output relate. IS refers to Investment-Saving while LM refers to Liquidity preference-Money supply. These curves are used to…

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Short-run Macroeconomic Equilibrium above or below Full Employment

Short-run macroeconomic equilibrium only occurs when the amount of real GDP demand is equal to the amount of GDP supply. Graphically, this happens at the point where the AD curve intersects the short-run average supply curve exactly on the long-run…

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Fluctuations in Aggregate Demand and Supply

Economists believe that business cycles and fluctuations in levels of GDP are a result of a shift in the aggregate demand or supply curve. The Business Cycle The business cycle (economic expansions and contractions) is mainly caused by changes in…

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Movements Along and Shifts in Aggregate Demand and Supply Curves

Aggregate demand (AD) and aggregate supply (AS) curves are used to address economic issues such as expansions and contractions of the economy, causes of inflation, and changes in unemployment levels. Movements along these curves curve are caused by price level…

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Explain the Fundamental Relationship among Saving, Investment, Fiscal Balance, and Trade Balance

Saving and investing often are used interchangeably, but there is a difference. Saving is setting aside money you don’t spend for emergencies or for a future purchase. Investing, on the other hand, is buying assets such as real estate, stocks…

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Comparison among GDP, National Income, Personal Income, and Personal Disposable Income

GDP GDP stands for Gross Domestic Product. It refers to the market value of all goods and services produced within an economy in a given period of time. Equivalently, GDP also refers to the total income earned by each household,…

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Compare Nominal and Real GDP and Calculate and Interpret the GDP Deflator

It is economically healthy to exclude the effect of general price changes when calculating the GDP because higher (lower) income caused by inflation does not indicate a higher (lower) level of economic activity. Real GDP Economists describe real GDP as what would…

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Compare Methods of Calculating GDP

In calculating the Gross Domestic Product (GDP), there are two different approaches used. The first one is the income approach. This method measures GDP as a summation of all income generated in the economy in that year. The income includes…

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Tracking Error

Tracking error refers to the difference in returns between a portfolio (index fund) and a benchmark (target index) against which its performance is evaluated. In other words, it is the difference between the returns on an index fund and the…

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Binomial Stock Price Tree

A binomial tree is used to predict stock price movements assuming there are two possible outcomes, each of which has a known probability of occurrence.

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