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Boyes, Melvin & Boyes (2008) stated that the value of real GDP is determined at the point where aggregate demand and aggregate supply curves intersect each others. From the above example of aggregate demand and supply curves of Evergreen Land, both aggregate demand and aggregate supply curves intersect at the price level of 100, and this equilibrium point determines the value of real GDP. Since equilibrium is the point where the value of real GDP is determined, a shift in either the aggregate demand or aggregate supply curves leads to a change in the real GDP values.
Answer: Aggregate supply curve shows the level of real domestic outputs that firms produce at various price levels. Aggregate supply curve is short run is upward sloping, but is downward sloping in the long run. Long run aggregate curve, as depicted above, will be a vertical line at the full employment output because the wages and other input prices in the long-run increase and decrease to match changes in the price levels.
Answer: A decrease in the price level is very likely to cause an increase in aggregate demands in the short run. According to Keynesian multiplier effect, this should in turn impact the aggregate demand to cause a further increase. An increase in the aggregate demand for goods or services due to various factors such as government policy or wealth factors or international factors can as a result shift the aggregate demand curve horizontally to the right (Kennedy, 2000).
When there is an increase in the aggregate demand, it causes the price level and real GDP to move in the same direction because of increased spending or higher investments of governments. It also means that more and more quantities of national output will be demanded at any given price levels. The increase in aggregate demand thus shifts the aggregate demand curve to the right side.
The short-run equilibrium level of real output and the price levels are determined by the point where both
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Along with that, we will also analyze the importance of aggregate demand and aggregate supply in the field of economics. We will also discuss the reasons for the shifts in the aggregate demand curve and the aggregate supply curve in order to get a better understanding of the importance of aggregate demand and aggregate supply in the field of macroeconomics.
It was the longest and most destructive depression ever felt by the industrialized western world. The great depression was rooted in the US but rapidly turned into a global economic slump owing to the special and friendly relationship that had been forged between the US and European economies after World War I.
Aggregate supply on the other hand represents the amount of products that an economy can produce. Under normal circumstances, aggregate demand should equate to aggregate supply. The studying these concepts of aggregate supply and demand helps in understanding macroeconomics at a wider level.
The aggregate demand curve reflects price levels for goods and services produced domestically and which consumers, government, foreigners and businesses are willing to purchase. It slopes downwards to the right with the decrease in price levels with the increase in demand.
aggregate supply is ‘the relationship between the real quantity supplied of newly produced final goods and services in an economy and the general price level’ (Truett et al. (1998, 71). In other words, aggregate supply represents the ‘balance’ between products/ services
The article was written on 19th March, 2012, a time when consumer prices had consistently gone up over a few months. A declining U.S dollar value triggered increased oil prices in the international markets,
Unemployment affects the level of individual income. An increase in unemployment reduces disposable income that hence reduces demand for goods and services. Firms can however hire from the increased pool of unemployed at low wage