RELATIVE IMPORTANCE OF FACTORS INFLUENCING DEMAND
While economists generally agree on the factors influencing demand, they differ in the emphasis they place on different forces. Some economists concentrate primarily OR monetary forces In. movements in aggregate demand, especially stressing the role of the money supply. Accord to these economists, who are often called the supply of money’ is the primary determinant of the total dollar value of spending.
Other economists focus on exogenous factors instead. For example, some have argued that technological progress is one of the key determinants of booms and busts. For instance, railroads first became commercially practical in the 1850s. That innovation opened up no decades of massive investment in roads allover the world and helped the economies enjoy a sustained economic expansion. Economists looking at the 19905 have concluded that the fundamental technological changes in computer hardware, software, and communications have triggered rapid declines in prices in that sector and in the economy have led to a significant increase in the overall potential growth of the economy; and have produced a remarkable increase in investment. Some believe that the potential growth of the Internet may spawn yet another investment boom as companies spend hundreds of billions of dollars developing communications and software.to prepare for commerce.
The mainstream of macroeconomic thinking today is an eclectic approach, which has its roots in the Keynesian tradition but incorporates modern developments as well. This approach, called Keynesian accepts that different policy and exogenous forces move the economy during different periods. For example, fiscal policy would be seen as the leading determinant of aggregate demand during World War II, when military spending was air sorting almost half of GDP and monetary policy was passive. In recent years, however, as the federal budget was limited by Congressional rules and the Federal Reserve became more active in combating inflation and unemployment, monetary policy exercised the dominant influence over fluctuations in economic activity.
We now have seen the major elements of the the of aggregate demand. The next chapter explores the theory in greater depth by analyzing the simplest approach, the multiplier.
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