AGGREGATE DEMAND AND SUPPLY

Aggregate

demand

Aggregate suppl

y

1.Monetory policy2.Fiscal policy

3.Other forces

1.Price level and

costs2.Potential

output3.capital,labor,technol

ogy

Interaction of

aggregate

demand and

supply

output

Employment and

unemployment

Prices&inflation

Foreign trade

Aggregate supply

Aggregate supply refers to the total quantity of goods and services that the nations business willing to produce and sell in a given period.

Aggregate supply depends upon the price level ,the productive capacity of the economy and level of costs.

Aggregate demand

It refers to the total amount that different sectors in the economy willing to spend in a given period .

Aggregate demand is the sum of spending by consumers ,business, and governments, and it depends on the level of prices ,as well as on the monetary policy, fiscal policy, and other factors,

Aggregate demand and supply curves

The downward sloping curve is the aggregate demand schedule, or AD curve.

It represents what everyone in the economy-consumes, business, foreigners and governments-would buy at different price levels.

AD curve represents the quantity of total spending at different price levels, with other factors held constant.

The upward sloping curve is the aggregate supply schedule or AS curve.

This curve represents the quanity of goods and services that buisness are willing to produce and sell at each price level.

Macro economic equilibrium

Macro economic equilibrium is a combination of overall price and quantity at which all buyers and sellers are satisfied with their purchases, sales and prices.

Once the equilibrium is reached neither the buyers nor sellers wish to change their quanties demanded r supplied ,and there is no price level change.