What Is Economic Dynamics?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 10 May 2020
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Economic dynamics is a term that is used to refer to the act of monitoring an economic system with the aim of analyzing it for any type of changes that may have occurred within a period of time. As such, in order for economic dynamics to be competently observed, there must be a scale of reference that would include the situation at a certain point in time in relation to the situation at a later time during the course of the observation. Another way of describing economic dynamics would be to say that it is the analysis of a particular economic system with the sole aim of finding out the changes in both the macroeconomic and microeconomic factors during the time frame that the observation occurs.

One of the factors that may be observed during an economic dynamics observation would be the behavior of the business cycle in that economy during the period of observation. The business cycle here refers to the demarcation of economic activities into stated units of time with a view to comparing the behavior of each business cycle, giving the economist and other interested parties an idea of the performance of the economy. Assuming the economy fails to reach an expected benchmark within consecutive business cycles, this could be an indication that the economy is not doing well, and it may also be a precursor to unwanted economic situations, such as inflation and a consequent depression. Monitoring the business cycles with their various outcomes is one of the factors that is contained in the field of economic dynamics.

Another factor that is studied during economic dynamics analysis is the manner in which the market in that economy is behaving. This type of analysis would necessarily include a study of the activities in the stock market in that economy as well as other factors, such as raising or lowering the interest rates by the main bank in that economy. When it has been determined by a bank that there is the possibility of a downturn in the economy that may be the consequence of certain negative factors, including a rate of demand that far outstrips the available supply rate, the bank may instigate certain measures to bring a balance between the demand in relation to the supply. Such a measure may include raising the rate of interest on finance and are included in the factors that are studied as part of economic dynamics.

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