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AGRARIAN: A term signifying a connection to farming, agricultural production, or the land. Agrarian is often used as a modifier for other terms, such as agrarian society (an economy that relies heavily on agricultural production), agrarian society (a society based on the institutions that emerge from a heavy reliance on agricultural production), or agrarian movement (a political movement designed to product agricultural production). Because farming was one of the first and remains one of the most fundamental activities undertaken by even the most primitive society, agrarian is typically associated with less developed, as in the phrase a "less developed, agrarian nation."
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                           PHYSICAL WEALTH, AGGREGATE DEMAND DETERMINANT: One of several specific aggregate demand determinants assumed constant when the aggregate demand curve is constructed, and that shifts the aggregate demand curve when it changes. An increase in the physical wealth causes a decrease (leftward shift) of the aggregate curve. A decrease in the physical wealth causes an increase (rightward shift) of the aggregate curve. Other notable aggregate demand determinants include interest rates, federal deficit, inflationary expectations, and the money supply. Household wealth comes in two basic forms--physical wealth and financial wealth. Physical wealth consists of houses, cars, land, property, furniture, appliances, and the whole array of satisfaction-generating physical goods. Financial wealth includes money, bank accounts, stock certificates, bonds, and other financial instruments that provide direct or indirect claims on physical goods.With physical wealth the points is that once it has been acquired, it is no longer needed. That is, once Duncan Thurly owns a refrigerator, he has a refrigerator, and he does not need a refrigerator. Alternatively, not owning a refrigerator puts Duncan in prime position to buy a refrigerator. Changes in physical wealth, as such, tend to cause consumption expenditures to change in the opposite direction. If households have more physical wealth, then they do not need to buy what they have, and consumption tends to fall. If households have less physical wealth, then they do need to buy some, and consumption tends to rise. A change in the physical wealth, by changing consumption expenditures, induces changes in aggregate demand. An increase in physical wealth decreases aggregate demand and a decrease in physical wealth increases aggregate demand. Shifting the Curve |  | The exhibit to the right presents a common aggregate demand curve. Like all aggregate demand curves, this one is constructed based on several ceteris paribus aggregate demand determinants, such as physical wealth. The key question is: What happens to the aggregate demand curve if physical wealth changes?More Physical WealthSuppose, for example, that the economy has been growing steadily for a couple of years. Real production has expanded. Disposable incomes have risen. And most importantly, the household sector has devoted a significant portion of consumption expenditures to the purchase of durable goods, such as cars, houses, furniture, and appliances. This accumulation of durable goods has added to the physical wealth of the household sector. With this increase in physical wealth, with this stockpile of relatively new durable goods that will be functioning for several years, the household sector is inclined to decrease consumption expenditures.The household sector reduces consumption by increasing saving. This saving could take the form of simply diverting more disposable income into bank savings accounts or other financial assets. However, it is also likely to take the form of making payments on the loans used to purchase these durable goods. Because loan repayments are income that is NOT used to buy current production it is considering saving. The result is that this increase in physical wealth causes a decrease in consumption expenditures and subsequently a decrease in aggregate demand. To see how an increase in physical wealth affects the aggregate demand curve, click the [More Wealth] button. The accumulation of physical wealth triggers a decrease in aggregate demand, which is a leftward shift of the aggregate demand curve. Less Physical WealthAlternatively, suppose that the economy has been through a contraction. Real production has fallen. Disposable incomes have declined. And most importantly, the household sector has NOT purchased many durable goods, such as cars, houses, furniture, and appliances for a while. People have had to "make due" with existing durable goods. But these durable goods are wearing out, breaking down, and depreciating. In essence, the physical wealth of the household sector is decreasing. Moreover, loans used to finance previous durable good purchases are being paid off. With this decrease in physical wealth and with less outstanding debt the household sector is inclined to increase consumption expenditures, especially to purchase needed durable goods.The household sector is able to pay for this extra consumption, even though disposable income might not be rising, by decreasing saving. This saving could take the form of simply withdrawing funds from existing bank savings accounts or "cashing in" other financial assets. However, it is also likely to take the form of getting loans through financial markets. The result is that this decrease in physical wealth causes an increase in consumption expenditures and subsequently an increase in aggregate demand. To see how a decrease in physical wealth affects the aggregate demand curve, click the [Less Wealth] button. The drop in physical wealth triggers an increase in aggregate demand, which is a rightward shift of the aggregate demand curve. What Does It Mean?Physical wealth as an aggregate demand determinant is a key part of the business cycle. Household consumption expenditures are the largest of the four expenditure categories, comprising about two-thirds of aggregate expenditures on real production. While consumption is relatively stable compared to the extremely volatile investment, even small changes in this large expenditure category can trigger business-cycle instability. And small changes in consumption can result from changes in physical wealth.During an expansion, the household sector accumulates physical wealth, especially in the form of durable goods. However, once this physical wealth has been accumulated, the household sector reduces consumption expenditures, often because they are paying off the debt used to buy these durable goods. The drop in consumption induces a decrease in aggregate demand, which can then trigger the onset of a contraction. During the contraction, the household sector's stockpile of durable goods breaks down, wears out, and otherwise depreciates, meaning physical capital decreases. In addition, debt used to finance the purchase of these durable goods is being paid off. This entices the household sector to increase consumption expenditure, which induces an increase in aggregate demand, and triggers an expansion.
 Recommended Citation:PHYSICAL WEALTH, AGGREGATE DEMAND DETERMINANT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: February 11, 2025]. Check Out These Related Terms... | | | | | | | | | | | | | | Or For A Little Background... | | | | | | | | | | | | | | | And For Further Study... | | | | | | | | |
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Today, you are likely to spend a great deal of time going from convenience store to convenience store seeking to buy either one of those memory foam pillows or a remote controlled train set. Be on the lookout for pencil sharpeners with an attitude. Your Complete Scope
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Ragnar Frisch and Jan Tinbergen were the 1st Nobel Prize winners in Economics in 1969.
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"I can feel guilty about the past, apprehensive about the future, but only in the present can I act." -- Abraham Maslow, Psychologist
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ADR American Depositary Receipt, Asset Depreciation Range
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