Macroeconomic instability.
Explanation of Solution
In economics, the mainstream of macroeconomic instability is Keynesian-based and it focuses on aggregate spending and its components. Changes in investment spending are significant and lead to changes in the
Investment spending refers to wide variation and a ‘multiplier effect’ that expands these changes into greater amount in aggregate demand; these can cause demand pull inflation in the forward direction or a recession. A mainstream view of instability could arise on the supply side; it leads to decreases in a nation’s aggregate supply which may threaten the economy by simultaneous causing cost push inflation or recession.
Concept introduction:
Demand pull inflation: Demand pull inflation refers to increasing price due to increasing the aggregate demand.
Cost push inflation: Cost push inflation refers to increasing price due to increasing the cost of production.
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Chapter 39 Solutions
Economics (Irwin Economics)