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Aggregate Demand and Aggregate Supply

Aggregate Demand and Aggregate Supply. Aggregate Demand. An aggregate demand curve (AD) shows the quantity of final goods and service (real GDP) that will be purchased at each price level (the GDP deflator). Three effects: real balances and hence consumption

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Aggregate Demand and Aggregate Supply

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  1. Aggregate DemandandAggregate Supply

  2. Aggregate Demand • An aggregate demand curve (AD) shows the quantity of final goods and service (real GDP) that will be purchased at each price level (the GDP deflator). • Three effects: • real balances and hence consumption • interest rates and hence investment and consumption • exports and imports

  3. Shifts in the Aggregate Demand Curve • The causes of shift • Changes in the degree of optimism among households and firms • Changes in the nation’s fiscal and monetary policies • A change in the money supply

  4. Aggregate Supply • An aggregate supply curve (AS) shows the quantity of final goods and services (real GDP) that will be produced at each price level (the GDP deflator).

  5. Shifts in the Aggregate Supply Curve • The causes of shift • Change in wages and salary. • Change in the nation’s labor supply, capital stock, and technology.

  6. Aggregate Demand and Supply Interaction • AD and AS determine the equilibrium levels of real GDP and the GDP deflator • Shifts in AD

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