Explain Inflation, Hyperinflation, Disinflation and Deflation
Inflation Inflation is the persistent increase in the general price level of goods and services in an economy over a given period of time. Fewer goods and services are bought when price levels rise hence the reduction in purchasing power….
Describe Theories of the Business Cycle
Various economists have formulated several theories in a bid to try and demystify the concept of business cycle. 1. Models With Money Inflation is often considered a consequence of the business cycle. When monetary policy becomes encouraging, the economy grows…
Distinguish Long-run Full Employment, Recessionary Gap, Inflationary Gap and Stagflation
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…
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…
Short-run Macroeconomic Equilibrium Above or Below Full Employment
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…
Fluctuations in Aggregate Demand and Supply
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…
Movements Along and Shifts in Aggregate Demand and Supply Curves
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…
Explain the Fundamental Relationship Among Saving, Investment, Fiscal Balance, and Trade Balance
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…
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,…
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. This is because higher (lower) income caused by inflation does not indicate a higher (lower) level of economic activity. Real GDP Economists describe real GDP…
