Run Equilibrium the Aggregate Supply Assessment

Open, View, and/or
Download this Document

Total Length: 487 words ( 2 double-spaced pages)

Total Sources: 1

Page 1 of 2

The hiring would then lead to an increase in consumer spending, which could encourage other businesses to increase their hiring as well. The increased business investment could allow companies to develop processes, technology and capacities that will allow them to not only increase their presence in domestic markets but to increase their exports as well. The Keynesian as-AD model assumes that this multiplier will result in an increase in aggregate demand and aggregate supply, if governments increase spending. For the government, the multiplier is expected to decrease with the size of the investment, so the ideal amount of spending is not infinite, but is constrained by a declining multiplier, which would lead to an equilibrium level of government spending.

Stuck Writing Your "Run Equilibrium the Aggregate Supply" Assessment?

View All Our Example Run Equilibrium the Aggregate Supply Assessment

Have A Custom Example Essay Written



The as-AD model illustrates another reason by government spending cannot be infinite. As and AD increase, P also increases. This means that inflation occurs as demand and supply in the economy increase. In order to respond to inflationary pressure, the government must increase interest rates. These rates are the cost of borrowing, and as they increase they move towards the decreasing multiplier effect, finding an equilibrium point at which the cost of borrowing outweighs the benefits -- this is the natural point where government spending is constrained.

Works.....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Run Equilibrium The Aggregate Supply" (2010, June 17) Retrieved May 22, 2025, from
https://www.aceyourpaper.com/essays/run-equilibrium-aggregate-supply-10282

Latest MLA Format (8th edition)

Copy Reference
"Run Equilibrium The Aggregate Supply" 17 June 2010. Web.22 May. 2025. <
https://www.aceyourpaper.com/essays/run-equilibrium-aggregate-supply-10282>

Latest Chicago Format (16th edition)

Copy Reference
"Run Equilibrium The Aggregate Supply", 17 June 2010, Accessed.22 May. 2025,
https://www.aceyourpaper.com/essays/run-equilibrium-aggregate-supply-10282
   

Open, View, and/or
Download this Document
order custom essay example