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Macroeconomics

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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Unemployment

A person is considered to be unemployed if he doesn’t currently doesn’t have a job and is actively searching for one. When we look at the unemployment rate, we consider someone who is actively seeking a job. Otherwise, we do not count them in the labor force. The Bureau of Labor Statistics classifies actively seeking as someone who has "actively…
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Four Components of Aggregate Demand

There are four components of Aggregate Demand (AD); Consumption (C), Investment (I), Government Spending (G) and Net Exports (X-M). Aggregate Demand shows the relationship between Real GNP and the Price Level.Four Components of Aggregate Demand Any increase in any of the four components of aggregate demand leads to an increase or shift…
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The Trade Cycle

The different phases an economy goes through over time, such as booms and recessions, is known as the business or the trade cycle or the business cycle. The line through the trade cycle is called the trend line, which shows that the economy is always moving upwards or growing in the long run.Phases of the Trade CycleThe Trade…
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The Accelerator Effect

The Accelerator Effect, a Keynesian concept, is used to explain the level of investment in an economy. The accelerator effect refers to a positive effect on private fixed investment of the growth of the market economy. Investment is a function of changes in National Income, especially consumption. Investment is a key component of aggregate demand.…
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