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Aggregate demand and supply
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AggregateDemand and
Aggregate
Supply
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,Aggregate Demand
, Aggregate Demand
It is determined by real GDP. Real GDP (Y) has four components:
– Consumption (C)
– Investment (I)
– Government purchases (G)
– Net exports (NX)
Y = C + I + G + NX
Most of the variables (C, I, & NX) are determined by the price level; government purchases
(G) is an exception and normally determined by the decisions of policymakers.
, Aggregate Demand
There are several channels that prices can use to affect real GDP and aggregate dem
(AD). They are:
– The Wealth Effect
– The Interest-rate Effect
– The International-trade Effect
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