Economics - The Nature of Economic Instability
The Nature of Economic Instability
Economic activity is constantly changing as leakages and injections
fluctuate. In all contemporary markets, there is a long-term trend of
rising production, income and expenditure, but there has not been a steady
yearly increase in economic activity. Rather, economic activity is unstable
by nature. It proceeds in irregular stages, with economic upswings followed
by much slower periods of economic activity. The pattern of fluctuations in
the general level of economic activity is known as the trade or business
The role of the government is to reduce the amplitude of the trade cycle.
This means it tries to stop excessive highs and lows.
To understand why macroeconomic instability occurs, it is important to
understand the nature and influences on aggregate demand and aggregate
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