EconomicsNotes

    Domestic Demand refers to the accumulated (that is, aggregate) demand within all the markets of an economy. As such, it can be handily summed up in a formula, C+I+G+X-M, where C is consumption, I is investment, G is net government spending, and X-M is net exports. This is usually referred to as ‘AD.’ Consumption is the largest part of AD. All the consumption decisions within the economy, including all non-investment purchases by households, individuals, and firms, add up to around two thirds of AD. In addition, the Keynesian economic theory asserts that there is a link between consumption and investment, which can drive AD upwards, as firms invest more when they see that consumers are purchasing more goods and services. Investment is a sustained addition to long-run aggregate supply, or capital for short. AD can be plotted against LRAS on a two-dimensional graph. If AD and LRAS meet at the point where there is maximum real GDP/GNI with no tendency for the price level t...

  Ultra-low interest policies have been a feature of global monetary management since 2008 in most countries (and were tried in Japan before that.) They exist in the context of the near-collapse of the global economy and of national and international banking, credit, and derivative markets in 2008, though they also reflect a perceived lack of inflation risk. The idea behind ultra-low interest rates, or negative real or nominal rates, was, firstly, to prevent a credit crunch. Credit crunches happen when banks have lent out a great deal of money and cannot fund a large volume of withdrawals. This causes banks to reduce refinancing and new lending, which puts individuals and businesses in a position where they cannot stay in the market and pay their bills and debts, thus creating a spiral of economic decline. In addition, banks might in such circumstances start asking for their loans and credit payments back early, worsening things still further. Many modern banks also are princip...