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DEMAND AGGREGATES, SUPPLY AGGREGATES, AND
MACROECONOMIC BALANCE
1. AGGREGATE DEMAND
Aggregate demand represents the total amount of final goods and services that consumers,
firms, government, or foreigners are willing to buy for any given price level for a given period. Its
symbol is AD. Thus, aggregate demand represents the total expenditure incurred on goods and
services over a given period of time, at a given price level. So it represents real GDP based on
the expenditure method.
The aggregate demand curve is the graphical representation that expresses the relationship
between real GDP and the aggregate price level while keeping other influential factors
unchanged. The aggregate demand curve tends negatively.
In macroeconomics, the aggregate demand curve shows the relationship between aggregate
price and total output. In the case of a single market, the price of the respective commodity is
set on the vertical axis, while the average price is set on the aggregate demand curve. Likewise,
on the horizontal axis is the quantity of a particular commodity, while on the aggregate demand
curve on the horizontal axis is real GDP.
The aggregate demand curve shows the inverse relationship between the average price level
and the demand for the national product, real GDP. The law of aggregate demand derived from
this inversion is; the increase in the price level reduces the aggregate demand and vice versa,
in the conditions when we keep all other factors unchanged .
Demand-side policies. The government seeks to intervene to orient the economy towards full
employment by using policies towards aggregate demand management. These are fiscal and
monetary policies. Expansion policies are used to increase aggregate demand in order to reach
the equilibrium level of the product. Rather the policies used to reduce aggregate demand are
intended to reduce the inflationary pressure caused when the price level rises.
2. AGGREGATE OFFER AND ITS DETERMINING FACTORS
Aggregate supply is the total of final products and services that manufacturers are willing and
able to offer in the market at a certain price level in a given period. Aggregate supply is
analyzed for the short-term and long-term periods. In the short run, with the change of
aggregate demand or supply, the prices of goods and services change, but not wages. In the
long run, with the change of aggregate demand or supply, both prices and wages change. Thus
the matching of demand with supply occurs in both the commodity market and the labor market.
DEMAND AGGREGATES, SUPPLY AGGREGATES, AND
MACROECONOMIC BALANCE
1. AGGREGATE DEMAND
Aggregate demand represents the total amount of final goods and services that consumers,
firms, government, or foreigners are willing to buy for any given price level for a given period. Its
symbol is AD. Thus, aggregate demand represents the total expenditure incurred on goods and
services over a given period of time, at a given price level. So it represents real GDP based on
the expenditure method.
The aggregate demand curve is the graphical representation that expresses the relationship
between real GDP and the aggregate price level while keeping other influential factors
unchanged. The aggregate demand curve tends negatively.
In macroeconomics, the aggregate demand curve shows the relationship between aggregate
price and total output. In the case of a single market, the price of the respective commodity is
set on the vertical axis, while the average price is set on the aggregate demand curve. Likewise,
on the horizontal axis is the quantity of a particular commodity, while on the aggregate demand
curve on the horizontal axis is real GDP.
The aggregate demand curve shows the inverse relationship between the average price level
and the demand for the national product, real GDP. The law of aggregate demand derived from
this inversion is; the increase in the price level reduces the aggregate demand and vice versa,
in the conditions when we keep all other factors unchanged .
Demand-side policies. The government seeks to intervene to orient the economy towards full
employment by using policies towards aggregate demand management. These are fiscal and
monetary policies. Expansion policies are used to increase aggregate demand in order to reach
the equilibrium level of the product. Rather the policies used to reduce aggregate demand are
intended to reduce the inflationary pressure caused when the price level rises.
2. AGGREGATE OFFER AND ITS DETERMINING FACTORS
Aggregate supply is the total of final products and services that manufacturers are willing and
able to offer in the market at a certain price level in a given period. Aggregate supply is
analyzed for the short-term and long-term periods. In the short run, with the change of
aggregate demand or supply, the prices of goods and services change, but not wages. In the
long run, with the change of aggregate demand or supply, both prices and wages change. Thus
the matching of demand with supply occurs in both the commodity market and the labor market.
