What Are the Two Channels Through Which the World Economy

question 219

Essay

What are the two channels through which the world economy can affect U.S.aggregate demand? State what changes in the world economy can increase U.S.aggregate demand.

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Definitions:

Automatic Stabilizers

Economic policies and programs, such as unemployment insurance and progressive taxes, designed to automatically adjust in response to economic conditions and stabilize the economy.

Business Cycle

The economic fluctuations experienced over time, characterized by periods of expansion (growth) and contraction (recession) in economic activity.

Legislative Action

The process by which a legislative body takes official steps to introduce, amend, pass, or reject laws and regulations.

Crowding-Out Effect

The phenomenon where increased government spending leads to a reduction in private sector spending, often due to higher interest rates.