Aggregate demand curve can shift due to the following factors; changes in expenditure, wealth effect, changes in income of foreigners and changes in expectations. Money
Money is essential in microeconomics because it influences almost every variable. Money has different functions such as the medium of exchange. Money is used as a measure of value. The major advantage of money acting as a measure of value is its ability to easily be converted into other goods. However, when money is used as a measure of value in certain circumstance, it does generate interest income for instance a current account. Money supply refers to available cash in the country.
Banks represent the financial systems in a country that contribute significantly toward economic development and improving the living standards of people. They also include clearing and settlement systems that are used to facilitate trade and channeling financial resources between borrowers and savers. Banks specializes on receiving deposit and assessing the credit worthiness of the borrower before issuing money. Banks are very critical in the economy because they ensure money circulations hence affecting the economic development of a …show more content…
This policy is characterized by increased government spending or lowering taxes in order to increase money supply in the economy. During recession, aggregate demand is lower than in full employment, which results to recessionary gap. In order to close this gap, the government usually increases spending which increases money supply in the economy and also aggregate demand (this is based on the argument that increased government spending increases demand in the economy). The government might decide to cut taxes which will yield similar result. For instance, when the government cut taxes, it allows citizens to have more money to spend. It is assumed that this saving will be spent on basic goods and services resulting to increase in goods and services (Eduardo Drumond & De Jesus,