The latter is an example of a macroeconomic externality. Aggregate demand is the sum of four components: consumption, investment, government spending, and net exports.

Consumption will change for a number of reasons, including movements in income, taxes, expectations about future income, and changes in wealth levels. Investment will change in response to its expected profitability, which in turn is shaped by expectations about future economic growth, the creation of new technologies, the price of key inputs, and tax incentives for…

macroeconomic externality — occurs when what happens at the macro level is different from what happens at the micro level; an example would be where, because of the coordination argument, upward sloping…. latter — an example of a macroeconomic externality. coordination argument — downward wage and price flexibility requires perfect information about the level of lower compensation acceptable to other laborers and market participants. expansionary fiscal policy — tax cuts or increases in government spending designed to stimulate aggregate demand and move the economy out of recession.