How does a bull market affect the economy?

July 8, 2024 No Comments

A: Trying to understand the impact of a bull stock market on the economy can present some chicken-and-egg dilemmas – where does correlation stop and causation begin? One belief commonly held by many consumers, investors and some market analysts is that a rising stock market

How does a high discount rate affect the economy?

July 8, 2024 No Comments

A: Setting a high discount rate tends to have the effect of raising other interest rates in the economy, since it represents the cost of borrowing money for most major commercial banks and other depository institutions. This could be considered contractionary monetary policy. Exactly how

How does a monopoly contribute to market failure?

July 8, 2024 No Comments

A: According to general equilibrium economics, a monopoly can identify or create a rigid demand curve, restrict supply and cause deadweight loss to the economy. The underprovision of a market good or service is known as a market failure. Underprovision is measured against the concept

How does adverse selection contribute to market failure?

July 8, 2024 No Comments

A: Adverse selection is perhaps the most academically cited example of market failure in a laissez-faire economy. The problem arises when exchanging agents have different information or conflicting incentives about product quality. According to adverse selection theory, voluntary market transactions sometimes attract the sub-optimal type

How does aggregate demand affect price level?

July 8, 2024 No Comments

A: Prices coordinate supply and demand, and they are also determined by it; there is no clean, direct and one-dimensional link between aggregate demand and general price levels. Under ceteris paribus conditions, however, a rightward shift in aggregate demand corresponds with an increase in the

How does contractionary fiscal policy lead to the opposite of the crowding out effect?

July 8, 2024 No Comments

A: According to general equilibrium models in contemporary macroeconomics, expansionary fiscal policy could cause crowding out of private activity in the credit market. This argument also flows the other way; contractionary policy could allow for increased private activity in the credit market. This phenomenon is

How does deflation impact consumers?

July 8, 2024 No Comments

A: Deflation impacts consumers positively in the short term but negatively in the long term. In the short term, deflation essentially increases the purchasing power of consumers as prices fall. Consumers can save more money as their income increases relative to their expenses. This also

How does economics study human action and behavior?

July 8, 2024 No Comments

A: In many respects, economics is more similar to social sciences such as psychology and sociology than hard sciences such as chemistry and physics. Economics – particularly microeconomics – is ultimately concerned with why, when and how human beings trade with each other. Different schools

How does expansionary economic policy impact the stock market?

July 8, 2024 No Comments

A: Expansionary economic policy leads to increases in the stock market because it generates increased economic activity. Policymakers can implement expansionary policy through monetary and fiscal channels. Typically, it is employed when the economy is slipping into a recession and inflationary pressures are dormant. Fiscally,

How does fiscal policy impact the budget deficit?

July 8, 2024 No Comments

A: Fiscal policy refers to any uses of the government budget to affect the economy. This includes government spending and levied taxes. Policy is said to be expansionary when spending increases or when taxes are lower. Conversely, policy is contractionary when spending decreases or taxes

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