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LABOR MARKET: A market that exchanges the services of labor resources. For the macroeconomy, this is a critical aspect of the aggregate resource markets, especially the short-run condition of rigid prices. Labor market wages tend to be rigid in short run. Such wage rigidity, was well as other short run problems, prevent labor markets from achieve equilibrium. The result is either unemployment or overemployment, both of which prevent long-run equilibrium in the aggregate market.

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Lesson 12: Business Cycles | Unit 4: Causes Page: 18 of 26

Topic: Investment <=PAGE BACK | PAGE NEXT=>

Instability of business investment is one explanation of business cycles.
  • During the Great Depression, production declined by 40% and investment declined by over 90%. Did this big drop in investment cause the overall drop in production?
  • Investment can trigger changes in production through the circular flow. A decrease in investment, causes a decrease in production, which reduces household income, which reduces consumption, which causes further reductions in production, income, and consumption.
  • Small changes in investment can cause magnified changes in aggregate production. A $10 billion decrease in investment might cause a $50 billion decrease in GDP.

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INVESTMENT EXPENDITURES

Expenditures made by the business sector on final goods and services, or gross domestic product, especially the purchase of productive capital goods. Investment expenditures play a central role in macroeconomic activity affecting both short-run business cycles and long-run economic growth. These expenditures reflect the general act of investment involving foregoing current satisfaction to produce capital goods and are officially measured by gross private domestic investment. These are one of four expenditures on gross domestic product. The other three are consumption expenditures, government purchases, and net exports.

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Today, you are likely to spend a great deal of time at a garage sale looking to buy either a set of steel-belted radial snow tires or a wall poster commemorating the 2000 Presidential election. Be on the lookout for door-to-door salesmen.
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There were no banks in colonial America before the U.S. Revolutionary War. Anyone seeking a loan did so from another individual.
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