BBG 101 Lecture Notes - Lecture 10: Aggregate Demand, Ceteris Paribus, Fiscal Policy

• School: Tunxis Community College
• Department: Business – General
• Course: BBG 101
• Professor: Smith

Document Summary

Changing interest rates leads to changes in ad which then change inflation, output and employment. Managing inflation and growth, and ensuring financial stability of the system has recently become much more complicated for the rba. Low inflation and stagnant unemployment lower r to stimulate i and c via r, and. Nx via er (see later) so that real output increases. But lower r creates higher levels of borrowing (gearing or leverage) in asset markets, and hence creates price bubbles for property (residential and commercial) and shares. Only higher r will prevent future financial stress or crises for agents in the financial sector. Fp is the use of government spending and revenue instruments to influence the levels of aggregate demand, output, employment and economic growth. On the spending side, the main instrument is g, expenditure on final g and s by the government.