March 21, 2018 

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LEVERAGE: The use of credit or loans to enhance speculation in the financial markets. Suppose, for example, that you take the $1,000 in your bank account to your stock broker and purchase $1,000 worth of stocks, bonds, or whatever. A leveraged purchase would let you use your $1,000 to buy, let's say, $10,000 worth of stocks or bonds. The remaining $9,000 of the purchase price comes from a loan.

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Lesson 16: Aggregate Shocks | Unit 4: Complex Shifts Page: 14 of 21

Topic: AD Increase <=PAGE BACK | PAGE NEXT=>

The case of an increase in the AD curve. Let's start at long-run equilibrium. All three curves, AD, LRAS, and SRAS, intersect at the same long-run equilibrium values, Po and Qf.
  • With a rightward shift of the AD curve, the aggregate market achieves short-run equilibrium at a higher price level and more real production.
  • The labor market imbalance causes wages and production cost to rise. The SRAS shifts leftward. It stops shifting when it intersects the new AD and the original LRAS curves for a new long-run equilibrium. The price level is even higher and real production returns to full employment.

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Business investment expenditures that depend on income or production (especially national income and gross domestic product). That is, changes in income induce changes in investment. Induced investment reflects the observation that the business sector is inclined to reinvest profits (boosted by a growing economy) in capital goods. It is measured by the marginal propensity to invest (MPI) and is reflected by the positive slope of investment line. The alternative to induced investment is autonomous investment, which does not depend on income.

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Today, you are likely to spend a great deal of time visiting every yard sale in a 30-mile radius hoping to buy either a T-shirt commemorating the 2000 Olympics or a genuine fake plastic Tiffany lamp. Be on the lookout for malfunctioning pocket calculators.
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