Sample Essay

The aggregate demand function in a closed economy is made of the following components, consumption, interest rates, taxes, and government spending. The aggregate demand in the closed economy does not include imports and exports.

AE= C + I + T + G

When demand increases, with expenditure in the economy remaining constant, the autonomous spending increases, resulting in an increase in the national income in the market. Similarly, when the demand decreases with expenditure in the economy remaining constant, the autonomous spending decreases, resulting in a decrease in the national income in the market.

A direct result of the stock market crash is a recessionary period in the country’s economy. The recession indicates the slowdown of the economy with the GDP for the period decreasing and a marked decrease in demand as well as supply.

In case of a stock market crash, the wealth of the people decreases which affects their propensity to consume and purchase by decreasing it. The aggregate demand is defined as the willingness and the ability to purchase, and with the decrease in wealth, the ability to purchase in the market also decreases therefore having a negative effect on aggregate demand by decreasing it to cause a slowdown in the economy.

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Essay: Aggregate demand in a closed economy
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