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Macroeconomics

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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Bimetallism

Bimetallism is a monetary standard in which the value of the monetary unit is equivalent to a certain quantity of gold and to a certain quantity of silver. Such a system establishes a fixed rate of exchange between the two metals.Characteristics of BimetallismBoth gold and silver money are legal tender in unlimited amounts.…
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Monetary Policy

Monetary Policy involves the country's central bank controlling the interest rate and money supply. Monetary policy affects Aggregate Demand (AD), and an expansionary monetary policy increases AD, while a contractionary monetary policy decreases AD.The goals of monetary policy are to promote employment, stabilize prices and control long-term…
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