Summary AGGREGATE DEMAND AND AGGREGATE SUPPLY WITH DIAGRAMS

AGGREGATE DEMAND
&
AGGREGATE SUPPLY



CIE A LEVEL/OCR/AQA/NCUK/IB/EDEXCEL

,In the macroeconomy. the level of activity is
determined by the interaction of aggregate demand
and aggregate supply.


Demand for an economy’s product comes from
households, firms and the government within the
country and from households, firms and
governments in other countries.


Changes in demand for and supply of the economy’s
products influence prices in the country and the
international competitiveness of the products made.

, AGGREGATE DEMAND




The total spending on an economy’s goods and services at a
given price level in a given time period.
Aggregate Demand (AD) is given as:
AD = C + I + G + (X-M)
Where:
C stands for consumption/consumer expenditure, which
consist of spending by households on goods and services.
I stands for investment: Business spending/spending by the
private sector on capital goods.
G stands for government spending on goods and services;
spending could be recurrent expenditure and capital
expenditure.
(X-M) stands for the difference between the value of exports
of goods and services and the value of imports of goods and
services.

, AGGREGATE DEMAND CURVE

The aggregate demand curve shows the different
quantities of total demand for the economy’s
products at different price levels.
A rise in the price level will cause a contraction in
aggregate demand and a fall in the price level will
result in an extension in aggregate demand.
The downward sloping nature of the AD curve is
shown in the diagram below.