Aggregate demand and aggregate supply analysis

Aggregate demand and aggregate supply analysis

1. aggregate demand (AD: the total demand for an economy’s goods and services at a given price level in a given time period.

   • Aggregate demand components
     • AD graph
       • An increase in aggregate demand
   • Consumer expenditure (also called consumer spending or consumption) is spending by households on goods and services to satisfy current wants, for example, spending on food, clothing, travel and entertainment.
     • Disposable income is the amount of money that a person or family has left after paying their taxes. It is the portion of income that can be spent on necessities, such as food and rent.
       • dissaving: consumer expenditure exceeds income, with people or countries drawing on past savings, or borrowing
         • savings: income minus consumption.
           • investment: spending on capital goods
             • Government spending: the total of local and national government expenditure on goods and services
               • net exports: exports - imports
                 • exchange rate: the price of 1 currency in terms of another currency
                   • Aggregate supply (AS): the total output (real gdp) that producers in an economy are willing and able to supply at a given price level in a given time period
                     • short run aggregate supply(SRAS): the total output of an economy that will be supplied when there has not been enough time for the prices of factors of production to change.
                       • long run aggregate supply(LRAS): the total output of a country supplied in the period when prices of factors of production have fully adjusted
                         • average costs: the cost per unit of output
                           • supply side shocks: large and unexpected changes in short-run aggregate supply.
                             • keynesian: people who agree with the view of the economist John Maynard Keynes (1883–1946) that government intervention is needed to achieve full employment.
                               • the Keynesian long-run aggregate supply curve
                               • new classical economists: economists who think that the LRAS curve is vertical and that the economy will move towards full employment without government intervention.
                                 • The new classical long-run aggregate supply curve
                                   • New classical view of an increase in aggregate demand
                                 • macroeconomic equilibrium: the output and price level achieved where AD equals AS is illustrated by the point where the AD and AS curves intersect.
                                   • Macroeconomic equilibrium. The point of equilibrium is where AD and AS intersect
                                     • If the price level was initially below P, there would be macro disequilibrium. The excess demand would push the price level back up to the equilibrium level. If the price level was above P, some goods and services would not be sold and firms would have to cut their prices.
                       • The short-run aggregate supply curve
                         • A decrease in short-run aggregate supply

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