Econ 313 Chapter Summary

This chapter looks at three of the six external shocks that trigger the microeconomic coordination process (MCP). MCP is the self-correction of an economy after experiencing a shock. The economy will always find its long term micro economic equilibrium where GDPAPEASF. The equilibrium if reached by movement of economics forces of supply (production and employment), demand (money available for purchase of goods) interest rates. The chapter considers the effect of funded demand that after the initial funding adjustment leaves the domestic supply of goods and services short of demand (GDPAPEASF). The economic shocks considered are an increase in APE, an increase in ASF and a decrease in GDP. An increase in APE (Demand caused expansion) An increase in demand whether domestic or foreign such as may be caused by improved economic outlook, a federal fiscal policy to stimulate the economy or exports demand will lead to a funding shortage. Interest rates will rise as demand for funding rises. The resulting adjustment will see funding (ASF) rise and aggregate demand fall (APE) until the two meet at equilibrium APEASF. The rate of increase in funding (ASF) will dampen the rise in demand as some demand is crowded out by lack of