The classical economics believe that full unemployment comes along due to the government's interference with the free markets thereby creating a monopoly market or industry.
Running head: BUSINESS ECONOMICS BUECO 5903 24 Question 6 If you wanted to increase aggregate demand how would you do it for the following? Consumption demand Aggregate demand simply refers to the total quantity of products that consumers are willing and able to consume at a certain price level and in a given period. For the aggregate demand to shift to the right or to rise, ways to increase consumption demand must be sought. An increase in income levels for the consumers can increase the consumption demand resulting in a rise in the aggregate demand. Through the provision of incentives by the government to ease the tax burden from the consumers, the consumption demand for various products will increase. Through an increase in the consumer's income, the Marginal Propensity to Consume (MPC) also rises and the aggregate demand increases as well. Lastly, consumers should have a regulated saving plan so that they can enhance their consumption demand which in turn increases their aggregate demand (Michelacci, Paciello & Pozzi, 2019). Investment demand Investment demand refers to a type of investment whereby individuals enhance wealth creation potential by postponing consumption to a later date. Therefore, to increase the aggregate demand, consumers must try to increase their investment demand. To achieve this, the government policies on spending and taxes should be checked so that the economic health can improve which in turn increases the investment demand. This can also be enhanced through the reduction in the rate of interest on various investments. Also to increase investment spending, the cost of borrowing should be lower through a reduction in interest rates (Sawyer, 2010).
Running head: BUSINESS ECONOMICS BUECO 5903 25 Net exports This is another variable that determines the shift in aggregate demand which is highly influenced by the exchange rate fluctuations. To increase the aggregate demand, the exchange rates need to be moderated so that the dollar becomes less strong thereby increasing the level of exports which in turn shifts the aggregate demand to the right ("Demand Function for Exports | Economics", 2019). Which of the three components also has an impact on the Aggregate supply side of the economy? Aggregate supply is also called total output and it refers to the overall supply of products and services which have been produced in an economy over a given period and under a set price level. Investment demand is the component that has an impact on the aggregate supply side of the economy. The costs of production will be lower which in turn increases the aggregate supply into the economy and even for exports when the exchange rates and taxes are subsidized through government policies check. There will also be a favorable economic environment that will give place for investors to put their capital into various investment projects. (Skeath, Velenchik, Nichols & Case, 2011) .
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- Supply And Demand