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FOREIGN: All economic activity that is "outside" the confines of a domestic economy. For the United States, this would be consumers, workers, businesses, and governments that lie beyond the U.S. national boundaries.

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Lesson 16: Aggregate Shocks | Unit 5: Synthesis Page: 20 of 21

Topic: Business Cycles <=PAGE BACK | PAGE NEXT=>

To illustrate a business cycle, let's begin with long-run, full-employment equilibrium.
  • With an expansion, consumers have accumulated durable goods.
  • This decreases consumption spending and aggregate demand. The AD curve shifts leftward. We have a recession.
  • Before the SRAS curve automatically shifts to restore full employment, people start buying durable goods again and the AD curve shifts rightward. We have a recovery.
  • The AD curve doesn't stop at full employment. With our expansion we have (possibly) inflation.
  • But accumulation of durable goods causes a decrease in aggregate demand again and another recession.
  • The process continues.

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INTERCEPT, NET EXPORTS LINE

The intercept of the net exports line indicates autonomous net exports, net exports that do not depend on the level of domestic income or production. This can be thought of as net exports, exports minus imports, that the foreign sector undertakes regardless of the state of the economy. Autonomous net exports are affected by the net exports determinants, which cause a change in the intercept and a shift of the net exports line.

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Today, you are likely to spend a great deal of time lost in your local discount super center trying to buy either a set of tires or a birthday gift for your grandfather. Be on the lookout for infected paper cuts.
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Mark Twain said "I wonder how much it would take to buy soap buble if there was only one in the world."
"When you play, play hard; when you work, don't play at all. "

-- Theodore Roosevelt, 26th US president

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