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RATE OF RETURN: The ratio of the additional annual income or profit generated by an investment to the cost of the investment. Here's a simple example, although the calculations are usually a great deal more involved for actual investments. If the cost of constructing a new factory is $10 million and it gives you an extra $1 million in profit each year, then its rate of return is 10 percent.

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Lesson 13: Aggregate Demand | Unit 1: The Concept Page: 1 of 22

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In this lesson we take a look at the demand side of the aggregate market (AD/AS analysis)--aggregate demand.

A definition:

Aggregate Demand is the aggregate or total expenditure on final goods and services produced in the domestic economy, at a range of price levels, during a given time period (usually a year).

Three points:

  • Expenditures are made by all members of society.
  • Expenditures are made during the year.
  • Expenditures are on the production that people use to satisfy wants and needs.
Aggregate demand is only one side of the aggregate market--the expenditure side--the other side is aggregate supply--the producing side.
  • Expenditures come from the household, business, government, and foreign sectors.
  • Production comes from resources--labor, capital, land, and entrepreneurship.
  • The aggregate market is a model used to analyze the economy's total production and the price level.
  • This analysis, also called AD/AS, lets us understand macroeconomic events, like recessions, inflation, and unemployment.
  • The aggregate market can be used to evaluate the effects of government policies.

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GOVERNMENT FAILURES

Inefficiencies in the allocation of resources attributable to imperfections in the operation of governments. Government failures are based on the utility-maximizing behavior of politicians, voters, nonvoters, special interest groups, and government employees. The identification and analysis of government failures is central to the study of public choice and offers something of a counterbalance to government actions designed to address the inefficiencies of market failures.

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Today, you are likely to spend a great deal of time touring the new suburban shopping complex wanting to buy either an AC adapter that works with your MPG player or rechargeable batteries. Be on the lookout for crowded shopping malls.
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More money is spent on gardening than on any other hobby.
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