Assignment First




When the real estate prices fall, the investments of businesses and individuals will be of lower worth and hence the confidence levels decrease. So there will be lower investments and hence the aggregate demand will shift left.

As a result, there will be higher exports and lower imports. Net exports will be higher in value comparatively. Aggregate demand will increase and hence the curve will shift to the right.

There are many ways to measure the economic growth. One of the most common ways to estimate real GDP is “quarterly growth at an annual rate” (Bank of Canada, n.d.). This estimate shows the change in GDP over different quarters, but compounded annually. This is frequently by media, since it looks into recent trends and in a quicker manner. Any issues can be attended quickly, if the trend is detected earlier. Though it illustrates recent economic developments more accurately, it is also volatile, owing to the impact of singular events such as labour disputes, etc during a specific quarter (Bank of Canada, n.d.). When a country has two successive negative quarters of economic growth, it is called recession (Gillespie, 2014, p.428).

No, a market-based economic system is not self-stabilizing and needs to be monitored, because there are many factors such as technological information, interest rates, exchange rates, expectations, competition, etc that determines the aggregate demand and supply, which can impact the circular flow model of economy. If it is not monitored and controlled, economic growth cannot be achieved.

As consumers do not spend, consumption expenditures will fall leading to a drop in the aggregate expenditures (Tucker, 2012, p.236). So there will be lower GDP level. However, since consumers are paying off debts, this money will be borrowed and used by other consumers or businesses, which will improve investment expenditures (Tucker, 2012, p.222), thus leading to a higher GDP. As a result, savings and investments increase, whereas consumption decreases only in the short term. So the equilibrium GDP will reduce in the short run and improved in the long run.

In case of a sustained increase in private investment spending, the equilibrium GDP level will increase, because businesses are optimistic of their investments and their confidence leads to higher acquisitions in assets, technology, etc, which will improve efficiency in production, thus leading to a higher GDP levels (Tucker, 2012, p.262).