Blog

The production function (or Solow growth model) is used to determine the economy’s underlying source of growth. It attributes the growth of the gross domestic product (GDP) and productive capacity to: The production function explains that the gross domestic product…

The sustainability of economic growth is measured by the rate of increase in productive capacity and/or by the potential gross domestic product of the economy. Sources of Economic Growth The growth accounting equation emphasizes the main factors that determine growth….

Aggregate Demand Aggregate demand is the total demand for goods and services in an economy. It is defined as the sum of the amount spent on real goods and services by all economic agents. It is calculated as shown below….

Short-run macroeconomic equilibrium only occurs when the amount of real GDP demand equals the amount of GDP supply. On a graph, this happens at the point where the AD curve intersects the short-run average supply curve, exactly on the long-run…

Long-run Full Employment Long-run full employment equilibrium occurs when the aggregate demand (AD) curve cuts the short-run aggregate supply curve (SRAS) at a point on the long-run aggregate supply curve (LRSS): Since the intersection occurs at a point on the…

Economists believe that business cycles and fluctuations in GDP levels result from 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 the short-run value…

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

Aggregate supply refers to the total amount of goods and services that firms in an economy are both willing and able to sell at a given price level. We must differentiate between the short- and long-run aggregate supply curves. The…

Aggregate Demand (AD) represents the quantity of goods and services that households, businesses, and government and international customers want to buy at any given level of prices.  Aggregate Supply (AS) represents the quantity of goods and services that producers are…

Saving and investing are often used interchangeably, but there is a difference between them. Saving is setting aside money for emergencies or a future purchase. On the other hand, investing is buying assets such as real estate, stocks, or bonds…