An external demand shock occurs when an unexpected external economic event leads to a substantial fall in exports and hence aggregate demand.
For example, the 2008-2009 Global Financial Crisis caused by the Subprime Mortgage Crisis in the United States led to a substantial fall in exports in Singapore.
When this happens, firms will employ even less factor inputs from households and hence will pay them even less factor income.
The further decrease in households’ income will induce them to further decrease consumption expenditure resulting in a further decrease in aggregate demand.
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When the cost of production in the economy rises independently of demand, firms will increase prices at the same output levels to maintain profitability.
In other words, they will decrease output at the same prices which will lead to a decrease in aggregate supply resulting in a rise in the general price level.
Lectures provide further theoretical understandings of the history of economic thought, the place of anthropology in this history, the emergence of capitalist economies, and the changing nature of individuals and societies as economic actors in the 20th century.
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