Economics (Irwin Economics)
Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
Question
Chapter 39, Problem 1DQ
To determine

Macroeconomic instability.

Expert Solution & Answer
Check Mark

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 aggregate supply, occasionally, and adverse supply shocks which change the aggregate demand.

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.

Economics Concept Introduction

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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