StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Nobody downloaded yet

Aggregate Demand and Its Components - Essay Example

Comments (0) Cite this document
Summary
This essay "Aggregate Demand and Its Components" is an attempt to figure out the constituents of aggregate demand and how they interact to determine the national income. The main focus of this essay is Keynesian economics and how aggregate demand is determined in Keynesian economics. …
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER91.1% of users find it useful
Aggregate Demand and Its Components
Read TextPreview

Extract of sample "Aggregate Demand and Its Components"

Download file to see previous pages My goal in this essay is to figure out how national income is determined through aggregate demand and what is the impact of aggregate demand on other major macroeconomic variables.

In national income determination, aggregate demand plays a vital role. The first major objective of any economy is to increase and sustain its national income, an analysis of aggregate demand is very important. By controlling the aggregate demand, you can control the major economic variables. Aggregate demand is the total demand in an economy for all the goods and services produced. It consists of:

Consumption expenditure depends on the real income of the household. An increase in the real income of the household leads to an increase in the consumption expenditure and a reduction in the real income of the household results in a reduction in consumption expenditure. When the income increases, people will increase their consumption expenditure but not the whole income. What is not spent on consumption, they save. The increased income is used for consumption and saving. Thus, consumption increases at a decreasing rate. It means as a person’s income increases he meets most of his consumption needs and the income that he sets aside for consumption needs become less. In other words, consumption expenditure is a function of income. So, there is a positive correlation between income and expenditure. Rather than consumption expenditure, Keynes gave priority to consumption function which is a mathematical function showing the relationship between consumption expenditure and income.

As income increases, people set aside a portion of their income for their future needs. In other words, as income increases, savings also increase. Even though the consumption increases as the income increase, the rate of increase is less. But, as the income increases, the savings increase at an increasing rate. It means, the individual set aside a larger portion of his income for savings and a smaller portion of consumption.  ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Aggregate Demand and Its Components Essay Example | Topics and Well Written Essays - 1500 words, n.d.)
Aggregate Demand and Its Components Essay Example | Topics and Well Written Essays - 1500 words. https://studentshare.org/macro-microeconomics/1750295-aggregate-demand
(Aggregate Demand and Its Components Essay Example | Topics and Well Written Essays - 1500 Words)
Aggregate Demand and Its Components Essay Example | Topics and Well Written Essays - 1500 Words. https://studentshare.org/macro-microeconomics/1750295-aggregate-demand.
“Aggregate Demand and Its Components Essay Example | Topics and Well Written Essays - 1500 Words”. https://studentshare.org/macro-microeconomics/1750295-aggregate-demand.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Aggregate Demand and Its Components

Aggregate demand and its components

...?Aggregate Demand and Its Components aggregate demand and how they interact to determine the national income. The main focus of this essay is Keynesian economics and how aggregate demand is determined in Keynesian economics. A basis proposition of Keynesian theory is that the equilibrium level of income and output depends on the economy’s aggregate spending for output. If aggregate spending is less then demand will be less and it results in unemployment and less national output. If aggregate spending is excessive, it results in inflation. My goal in this essay is to figure out how national income is determined through aggregate demand and what is the impact of aggregate... Aggregate Demand and Its Components... Demand and Its Components ...
5 Pages(1250 words)Essay

Aggregate demand and aggregate supply

...Aggregate Demand and Its Components... Aggregate Demand and Its Components... Aggregate demand and aggregate supply due: Aggregate demand and aggregate supply Aggregate demand represents the demand for final goods and services within a nation at a specified time and price. It shows the purchasing power of goods and services of people within an economy at the given price. 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. Policy makers within the economy must understand the concepts for the better allocation...
4 Pages(1000 words)Essay

Aggregate supply and demand

...Aggregate Demand and Its Components... Aggregate Demand and Its Components... Aggregate Supply and Demand Table of Contents Table of Contents 2 Introduction 3 Answer Resource Allocation 3 Answer 2 5 Answer 3 5 Answer 4 6 Answer 5 7 Answer 6 7 Answer 7 8 References 8 Introduction The resources that the world is endowed with are limited. On the other had human beings have unlimited wants. In a free market economy, the forces of demand and supply determine the market equilibrium and the prices are determined by the price system. When a country or a company has a comparative advantage compared to the other countries, producing a same good, the country which has the advantage can supply the good at a cheaper rate compared to the other countries. As a...
5 Pages(1250 words)Term Paper

Aggregate Demand or Aggregate Supply

...Aggregate Demand and Its Components... Aggregate Demand and Its Components... Aggregate Demand The article, “The Rising Price of the Falling Dollar”, by Charles Kadlec (http://www.forbes.com/sites/charleskadlec/2012/03/19/the-rising-price-of-the-falling-dollar/) highlights the economic implications of a declining U.S dollar value. Kadlec’s primary concern in the article is the increase in energy prices as the dollar value goes down. 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, resulting in a rise in the general price level of other consumer goods and services. The story line of the articl...
1 Pages(250 words)Essay

Aggregate Demand and Supply Models

...Aggregate Demand and Its Components... Aggregate Demand and Its Components... Demand and Supply Models ID Number & Total Number of Words: 500 Consumer income, sometimes referred to as “household income” is pertaining to the actual amount of money each consumer have after taxes and fixed monthly expenses have been deducted from their monthly income (Business Dictionary, 2012). In the United States, Fletcher (2012) reported that the “household income is down sharply since the recession ended three years ago”. As compared to US$126,400 average household income back in 2007, the average household income as of 2010 has reached its lowest point at US$77,300 (Fletcher, 2012). In the study of macroeconomics, Jain (2007, p. 65) explained that the aggreg...
2 Pages(500 words)Essay

Aggregate demand and aggregate supply

...Aggregate Demand and Its Components... Aggregate Demand and Its Components... ………………………………. …………………………………. …………………….. Aggregate demand and Aggregate Supply Question In a figure, plot aggregatedemand and aggregate supply curve for the economy of Evergreen Land. The two curves depicted above show the aggregate demand and aggregate supply for the country Evergreen Land. As shown above, the aggregate demand curve is downward sloping whereas aggregate supply curve is upward sloping. Question-2: Determine the values of real GDP and price level in short run macroeconomic equilibrium. There are basically two concepts of GDPs, 1) Nominal GDP and 2) Real GDP. Real values of GDP are adjusted for inflation, but nominal values of GDP are not so adjusted, a...
3 Pages(750 words)Essay

Aggregate Demand and Supply Models

...Aggregate Demand and Its Components... Aggregate Demand and Its Components... and Recommendation of Unemployment and Expectation in the U.S Analysis and Recommendation of Unemployment and Expectation in the U.S Unemployment rates in the U.S measure the number of people actively seeking for employment as a percentage of the existing labor force. The rate has been decreasing since last year. For example, the rates were 7.3% in October 2013 but have decreased to 5.9 as at September 2014. The table below shows the trend in unemployment. 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 ...
1 Pages(250 words)Essay

The Aggregate-Demand / Aggregate-Supply Model

...Aggregate Demand and Its Components... Aggregate Demand and Its Components... Demand/ Aggregate Supply Model Affiliation Creating realistic Scenario In this case, the scenario should affect both the aggregate demand and supply (Mankiw, 2011). In order to create an appropriate scenario, you should analyze the impacts of government policy and external shocks on the key economic policy targets. If the scenario raises government purchases, consumption, investment and net exports at a certain price level, it will increase the aggregate demand. If the scenario reduces consumption, government purchases, net exports and investments at given price level, it decreases the aggregate demand. The curve pf long-run aggregate-supply is vertical. The goods...
1 Pages(250 words)Coursework

Aggregate Demand and Aggregate Supply

...Aggregate Demand and Its Components... Aggregate Demand and Its Components... Demand and Aggregate Supply Abstract Demand and supply are two major concepts of economics. Every economy is developed and functions based on these concepts. Demand works on a basic law of ‘the quantity of a good demanded per period of time will fall as the price rises and rise as the price falls, other things being equal (ceteris paribus)’ (Sloman and Sutcliffe). It is also essential to note the various factors that determine demand. These include, a) tastes, b) number and price of the substitute goods, c) number and prices of the complementary goods, d) distribution of income e) income, and f) expected changes in the prices (Sloman and Sutcliffe). This paper has moved...
7 Pages(1750 words)Research Paper

Aggregate Demand Curve and Aggregate Supply Curve

...Aggregate Demand and Its Components... Aggregate Demand and Its Components... recession, unemployment and economic growth have always been matters of concern for economists as well as for economies. The aggregate demand and aggregate supply models enable us to analyze changes in real GDP and price levels. While aggregate demand curve shows the relationship between price level and real GDP, the aggregate supply curve helps us understand the relationship between real domestic output and price level. The relation between price level and real GDP and price level and real output can be influenced by a number of determinants like exchange rate and taxes etc. Introduction Macroeconomics is related with the performance, structure and behavior of the ec...
6 Pages(1500 words)Term Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Aggregate Demand and Its Components for FREE!

Contact Us