Google
Thursday 
March 28, 2024 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
KEIRETSU: A form of business structure common in Japan which involves an alliance of several businesses, each working toward the mutual success of the group. The alliance also has close ties to government. Each "independent" business owns stock in the others and shares executives and directors. Keiretsu can be either horizontally or vertically integrated. Horizontal keiretsu cluster around a major bank with business ventures in a wide variety of industries. Vertical keiretsu contain businesses in all production phases of a particular industry, from raw materials to production to marketing.

Visit the GLOSS*arama


FINANCIAL WEALTH, AGGREGATE EXPENDITURES DETERMINANT:

One of several specific aggregate expenditures determinants assumed constant when the aggregate expenditures line is constructed, and that shifts the aggregate expenditures line when it changes. An increase in financial wealth causes an increase (upward shift) of the aggregate expenditures line. A decrease in financial wealth causes a decrease (downward shift) of the aggregate expenditures line. Other notable aggregate expenditures determinants include consumer confidence, federal deficit, inflationary expectations, and exchange rates.
The wealth of the economy comes in two basic forms--physical wealth and financial wealth. Financial wealth includes money, bank accounts, stock certificates, bonds, and other financial instruments that provide direct or indirect claims on physical goods. Physical wealth consists of houses, cars, buildings, land, property, equipment, furniture, appliances, and the whole array of tangible goods.

The key with financial wealth is that it can be used to acquire physical wealth. In financial lingo, financial wealth tends to be liquid, it can easily flow between assets. Corporate stock, government savings bonds, and money market bank accounts can all easily flow into money. This money can then flow into, or be used to buy, corporate stock, government savings bonds, and money market bank accounts.

Or, more importantly for this present discussion, this financial wealth can flow into, or be used to buy, physical wealth, including houses, cars, buildings, land, property, equipment, furniture, appliances, and the whole array of tangible goods. That is, the financial wealth can be used for aggregate expenditures, especially consumption expenditures and investment expenditures.

Changes in financial wealth, as such, tend to cause consumption expenditures and investment expenditures to change in the same direction.

  • If the household sector and business sector have more financial wealth, then they have the ability to buy more goods.

  • If the household sector and business sector have less financial wealth, then they do not have the ability to buy as many goods.
A change in the financial wealth, by changing consumption expenditures and investment expenditures, causes changes in aggregate expenditures. A boost in financial wealth increases aggregate expenditures and causes an upward shift of the aggregate expenditures line. A drop in financial wealth then decreases aggregate expenditures and causes a downward shift of the aggregate expenditures line.

What It Does

Financial Wealth
Financial Wealth

The exhibit to the right presents a standard Keynesian aggregate expenditures line. Like all aggregate expenditures lines, this one is constructed based on several ceteris paribus aggregate expenditures determinants, such as financial wealth. They key question is: What happens to this aggregate expenditures line if financial wealth changes?

More Financial Wealth

Suppose, for example, that the stock market has been rising steadily for several years. This means that the value of corporate stock has risen, providing shareholders with an increase in financial wealth. These shareholders could simply hold onto their more valuable financial wealth, or they could "cash it in," using the money to purchase physical assets. The result is that this increase in financial wealth causes an increase in consumption expenditures and probably investment expenditures and subsequently an increase aggregate expenditures.

To see how an increase in financial wealth affects the aggregate expenditures line, click the [More Wealth] button. The increase in financial wealth triggers an increase in aggregate expenditures, which is a upward shift of the aggregate expenditures line.

Less financial Wealth

Alternatively, suppose that the stock market has been falling steadily for several years. This means that the value of corporate stock has fallen, causing the financial wealth of shareholders to decline. Because these shareholders now have less financial wealth, they are less able to purchase physical assets. In fact, some might be forced to sell off existing physical assets if they borrowed the funds used to purchase their corporate stock. The result is that the decrease in financial wealth causes a decrease in expenditures and probably investment expenditures and subsequently a decrease aggregate expenditures.

To see how a decrease in financial wealth affects the aggregate expenditures line, click the [Less Wealth] button. The decrease in financial wealth triggers a decrease in aggregate expenditures, which is a downward shift of the aggregate expenditures line.

What Does It Mean?

Changes in financial wealth come about for two key reasons:
  • Monetary Policy: An important component of financial wealth is money. The total supply of money in the economy is controlled through monetary policy by the Federal Reserve System for the expressed purpose of addressing the problems of business-cycle instability. A key to this monetary policy control is that financial wealth affects aggregate expenditures. Expansionary monetary policy increases the money supply, which adds to financial wealth and consequently increases aggregate expenditures. Contractionary monetary policy decreases the money supply, which reduces financial wealth and consequently decreases aggregate expenditures.

  • Stock Market: The stock market, and related financial markets, are the primary source of financial wealth for the economy. When stock prices rise, then the financial wealth of stock holders also increases. The result is an increase in aggregate expenditures. Alternatively, when stock prices fall, financial wealth also decreases, and so too do aggregate expenditures.

<= FINANCIAL WEALTH, AGGREGATE DEMAND DETERMINANTFIRM =>


Recommended Citation:

FINANCIAL WEALTH, AGGREGATE EXPENDITURES DETERMINANT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: March 28, 2024].


Check Out These Related Terms...

     | aggregate expenditures determinants | interest rates, aggregate expenditures determinant | federal deficit, aggregate expenditures determinant | inflationary expectations, aggregate expenditures determinant | exchange rates, aggregate expenditures determinant | physical wealth, aggregate expenditures determinant | consumer confidence, aggregate expenditures determinant | change in aggregate expenditures | change in aggregate demand | slope, aggregate expenditures line | intercept, aggregate expenditures line |


Or For A Little Background...

     | aggregate expenditures | aggregate expenditures line | determinants | gross domestic product | consumption expenditures | investment expenditures | government purchases | net exports | Keynesian economics | effective demand | psychological law |


And For Further Study...

     | aggregate market analysis | business cycles | circular flow | monetary economics | Keynesian model | Keynesian equilibrium | injections-leakages model | aggregate demand | aggregate expenditures determinants | fiscal policy | multiplier | monetary policy channels | financial wealth, aggregate demand determinant |


Search Again?

Back to the WEB*pedia


APLS

RED AGGRESSERINE
[What's This?]

Today, you are likely to spend a great deal of time looking for a downtown retail store wanting to buy either a coffee cup commemorating Thor Heyerdahl's Pacific crossing aboard the Kon-Tiki or a rechargeable battery for your cell phone. Be on the lookout for door-to-door salesmen.
Your Complete Scope

This isn't me! What am I?

The 22.6% decline in stock prices on October 19, 1987 was larger than the infamous 12.8% decline on October 29, 1929.
"Good judgment comes from experience, and often experience comes from bad judgment."

-- Rita Mae Brown ‚ Writer

ICTB
International Customs Tariffs Bureau
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2024 AmosWEB*LLC
Send comments or questions to: WebMaster