In this article we will discuss about the role of Aggregate Demand (AD) and Aggregate Supply (AS) in the Keynesian Model, explained with the help of a suitable diagram. In the Keynesian model an important role is played by aggregate demand, which consists of four components. First, there is household consumption, the main component of aggregate demand. Secondly, there is [...]
According to Keynes, business cycle is caused by variations in the rate of investment caused by fluctuations in the Marginal Efficiency of Capital. The term 'marginal efficiency of capital' means the expected profits from new investments. Entrepreneurial activity depends upon profit expectations. In his business cycle theory, Keynes assigns the major role to expectations. Business cycles are periodic fluctuations of [...]
Get the answer of: What is the Business Cycle? Business (trade) cycles refer to regular oscillations in the level of business activity over a period of years, which occurs when economic activity speeds up or slows down. In fact, business cycles and unemployment reflect unavoidable features of a market economy. The term 'Business Cycle or Trade Cycle' is used to [...]