Ripple effects by economic facts essays

Ripple effects by economic facts essays There are several things that can cause a ripple effect in our economy. There are economic facts, or things that will happen no matter what, that start to affect more and more people, until they sooner or later effect everybody. The Keynesian Transmission Mechanism is a good example of something that has a ripple effect on everybody. The Keynesian mechanism has three stages, each of which has an effect on something. The first stage is the increase or decrease in the supply of money (A-1). The second stage is for the investment to rise or fall in conjunction with the change of the money supply (B-1). The third and final stage in the mechanism, is for the total expenditure/aggregate demand curve to shift accordingly to the both the money supply, and the investment. There are also some walls that block the mechanism from working, that have ripple effects on the economy. These include the Liquidity trap, and Interest-Insensitive Investment. In the first stage of the Keynesian Transmission Mechanism, the money supply is either raised, or lowered by the Fed. They do this by buying and selling bonds to the public. If they buy bonds back, then they are essentially lowering the money supply, where as if they sell them, then they are raising the money supply. Looking at this alone, one can predict a rise or a fall in the amount of each individual has due to the scarcity of money, or the lack there of. This will have a ripple effect on the economy, because people will save more if they have less, and spend more if they have more (C-1). For example, if the Fed were to increase the money supply would cause a surplus of money in the money market. This in turn will have an effect on the interest rates. The interest rates will lower due to the money surplus (B-1). Because of the lower interest rate, the AD curve will shift to the right. This happens due to a drop in the price level because of the lower interest rate. W ith the l...