aggregate demand and supply

aggregate demand

Aggregate demand is the total demand for all final goods and services in an economy at a given time and price level.

real gdp units

Y

general price level

GPL

formula for aggregate demand

AD= consumer expenditure + capital investment + government spending + (exports of goods and services - imports of goods and services)

aggregate supply

aggregate supply measures the total volume of goods and services produced each year.

circular flow of income

inside arrows is the goods and services. household to firms is factor services, firms to households are goods and services. outside arrows are finance related. firms to households provides income, households to firms provides consumer expenditure.

factors of as

changes in wages, changes in other resource prices, taxes and subsidies, supply-side shocks

supply-side shocks

unexpected events that suddenly affects the productive capacity of an economy

conditions of circular flow of income model in a closed economy

1. whatever was produced is consumed

2. whatever was earnt was spent

3. no government intervention/tax/spending were involved