Ib economics commentary aggregate demand

As banks will have more money to lend, they will decrease interest rates. Also, the article mentioned negative real wage growth which could be the reason not to borrow as people are not confident about their future income.

Next you will learn that the factors of investment are very similar. Japan is importing some products with low price elasticity of demand which is the measure of the responsiveness of the quantity of a good demanded to a change in its price, for example, oil.

Money injections causing interest rates to fall also leads to people going from bond to share market because it might offer bigger interest. Both of them are the elements of aggregate demand — the total goods and services demanded in an economy at different price levels over a Ib economics commentary aggregate demand period of time.

To produce more firms demand more labour so unemployment falls and that in turn causes wages to rise.

If shareholders are mainly high income people who have large proportions of companies then they become even wealthier and might not necessarily consume more domestically.

If this increases initially consumption increases as they can consume beyond their disposable income. However, consumption the decreases when they have to repay their loans with interest. This injection means the Bank of Japan will purchase government issued bonds thus, increasing the money supply in the economy.

Firms respond to growing demand by producing more. An increase in interest rates decreases consumption expenditure.

That would also help the government in tackling deflation. Government bonds are held by people, banks, pension funds and possibly other institutions. Factors of investment Investment I: Also, increase GDP and decrease unemployment of which both usually are considered positive impacts.

That could happen because of wealth effect making people feel richer and hence, more likely to spend. Bank of Japan to inject 80 trillion yen into its economy The article is about the Bank of Japan injecting 80 trillion yen into the economy in its attempt to increase inflation.

Japan has an ageing population which tends to consume less than a young population and might even be living off their savings, hence, borrowing little to none. Below are the two main types of investment. Balance of trade is the net value of exports and imports of an economy over a period of time.

When interest rates rise, the reward for saving money increases and loans become more expensive, so there is less consumption. When those bonds will be exchanged for Japanese currency, money supply in the economy will increase. The government can influence the amount of disposable income an individual has by changing the amount of taxation and benefits, which therefore changes the level of consumption in the economy.

Thus, the effect on inflation from this fact would be insignificant. However, if shares are held by a number of low to middle income people, then the domestic consumption might grow causing aggregate demand to increase.

When interest rates fall, the monthly repayments for flexible mortgages decrease, so there is more consumption. For instance if they feel that they are likely to get a pay rise then they are likely to feel more confident about using their savings and therefore increasing consumption.

Improved BOT would mean rising aggregate demand which would lead to similar account of events that was explained before. This policy also hurts savers as they lose interest on their savings, so they have to save even more. When consumption is less than disposable income, the individual will save the remaining.

This may have to come from savings or loans. In reality MPC drops as income rises because people save. No part of this piece of work may be copied, reproduced or used without prior permission from the IB Economist and providing a link to the original source. So, even if interest rates fall people might not borrow and consume more, hence, the policy would not work.

A stable and growing economy, with low inflation and low unemployment will boast consumer confidence and increase AD. Copying sentences or parts of this piece of work will result in failing your IB Diploma programme because of plagiarism!

Hence, this policy should help Japan escape the deflationary gap. Capital is any manmade good used to produce other goods and services, such as machinery, buildings. If Japan is importing other goods which are essential for their production, meaning they have low PED, it would increase production costs and cause imported inflation.

To explain the effect of this policy the diagram below will be used: To evaluate, this policy fails if there is no borrowing.Aggregate Supply and Demand The quantity theory can be shown graphically in terms of the aggregate-supply aggregate-demand framework that has become popular in macroeconomic textbooks.

Aggregate demand is the amount people will spend, or money multiplied by velocity. Ib Economics Commentary - Aggregate Demand Words | 6 Pages. demand for small and cheap houses may increase while expensive houses drop in demand.

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a contractionary fiscal policy aimed at reducing aggregate demand (AD). It is evident that one of the chief causes of Spanish unemployment is. IB Study aims to help current IB students with the challenges of economics.

Economics is certainly more logical and interesting than it may at first seem Aggregate demand and aggregate supply: Aggregate demand IB Study aims to help current IB students with the challenges of economics.

Economics is certainly more logical and. Apr 25,  · IB Economics- Macroeconomics Commentary - Free download as PDF File .pdf), Text File .txt) or read online for free. The commentary discusses and explains the causes and some solutions to unemployment in Spain using the Huffington Post article "Spain unemployment hits record high on recession fears" Economics was taken as an /5(13).

Consumer demand is central to IB Economics and microeconomics. We start with an introduction to competitive markets, before moving on to the concept of demand itself.

Ib economics commentary aggregate demand
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