Topic 22 · macro
Aggregate Demand and Supply
To explain the downturns and upturns of the whole economy, demand and supply are viewed as a whole — as aggregate.
Aggregate demand (AD)
AD is the total demand for all goods and services at different price levels: consumption, investment, government spending, net exports. The curve slopes down.
Aggregate supply (AS)
AS is how much the economy produces at different price levels. In the short run it rises with prices; in the long run it hits potential (full use of resources).
Equilibrium and shocks
The crossing of AD and AS sets the price level and output. A shift of AD or AS causes inflation or a downturn; policy (monetary, fiscal) moves AD.
🎯 Now possible
- explain aggregate demand and supply
- tell short-run from long-run AS
- link AD/AS shifts to inflation and downturns
Cheat sheet
AD = C + I + G + (X−M) at different prices
AD slopes down, short-run AS — up
Long-run AS is vertical — potential
Policy moves AD; a resource shock — AS
Practice on this topic
Where to read more: Мэнкью — гл. 34Макконнелл–Брю — макроэкономика