Agregate Demand Shocks Flashcards
What external shocks can aggregate demand face?
- A large rise or fall in the exchange rate.
- A recession in external economies that the domestic economy may rely on.
- A slump in the housing market.
- A big change in share prices.
- A fall in the amount of credit available for borrowing.
- An unexpected change in domestic interest rates.
Why would a change in exchange rates affect aggregate demand?
This would affect export demand and second-round effectiveness on output, employments, incomes and profits of businesses connected to industries that rely on exports.
Why would a recession in an external economy affect domestic agregate demand?
A recession in an external economy may affect import and export prices to that external economy.
Why would a slump in the housing market or a big change in share prices affect aggregate demand?
It may make people less willing to spend their money, so there is less money being injected into the economy.
Why would a fall in amount people can borrow affect aggregate demand?
People are less likely to spend as they ill be spending their own money, so there would be less injections into the economy.
Why would a unexpected change in interest rates affect aggregate demand?
People may decrease their spending because of the uncertainty within the economy.
