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Hey, kid. I heard you failed your economics test yesterday.
Well, good for you. I'm pretty knowledgeable on economics. Let me tell you a little something.
Yeah, unfortunately.
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So, first things first, when people receive disposable income - that is, income after paying taxes and receiving government transfers - there exists a marginal propensity to consume which is spending each $1 earned and marginal propensity to save which is spending each $1.
These spending habits lead to the wealth effect or multiplier effect. The wealth effect is when people increase their spendings when they have plentiful assets and to decrease their spending when their assets decrease. On the other hand, the multiplier effect the idea that an initial change in spending leads to a larger, more magnified change in spending.
Got it, so far?
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One final thing, it's also important to note the aggregate demand (AD) and aggregate supply (AS). Aggregate demand is the total quantity of goods and services demanded by an economy, and aggregate supply is the total amount of goods and services supplied by firms.
Aaand, that should be all. Do better next time, okay?
Yeah, thanks! I'm going to get a 100 on that next one.

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