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Macroeconomics

Deflation

Deflation is defined as the decrease in the average price level of goods and services. It means a general decrease in consumer prices and assets, but the increase in the value of money. If the inflation rate is negative, i.e. below 0%, then the economy is experiencing deflation.Deflation usually occurs during a deep recession, when there is a…
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Demand Pull Inflation

In an Aggregate Demand and Aggregate Supply diagram, an increase in the aggregate demand curve leads to an increase in the rate of inflation, i.e., when the aggregate demand for goods and services is greater than the aggregate supply. Demand Pull Inflation is defined as an increase in the rate of inflation caused by the Aggregate Demand curve. It…
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Liquidity Preference Theory

The Liquidity Preference Theory says that the demand for money is not to borrow money but the desire to remain liquid. In other words, the interest rate is the 'price' for money.John Maynard Keynes created the Liquidity Preference Theory in to explain the role of the interest rate by the supply and demand for money. According to Keynes, the…
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Five Macroeconomic Goals

Every country has macroeconomic goals that it wants to achieve, these goals or objectives are key to ensuring long-term stable economic success. These are the five main macroeconomic goals that most central banks aim to achieve. For example, the U.S. Federal Reserve targets the inflation rate at roughly 2%.Five Macroeconomic Goals1.…
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Supply Side Policies

Supply Side Policies are policies aimed at increasing Aggregate Supply (AS), a shift from left to right. They enhance the productive capacities of an economy while improving the quality and quantity of the four factors of production. However, supply side policies are difficult to implement and take time to take effect.Successful policies lower…
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The Multiplier Effect

The Multiplier Effect is defined as the change in income to the permanent change in the flow of expenditure that caused it. In other words, the multiplier effect refers to the increase in final income arising from any new injections.Injections are additions to the economy through government spending, money from exports and investments made by…
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