Aggregate Demand & Supply

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Components of UK’s aggregate demand

• Consumption: 60-65%

• Investment: 20-25%

• Government expenditure: 15-20%

• Net trade: -5%

Aggregate supply

The total quantity of goods and services that producers in an economy are willing and able to supply over a period of time at a given level of price (one method of measuring GDP).

What is aggregate supply curve based on?

• Firms’ cost of production

• Depends on quantity of factors of production & ability to vary inputs to vary overall goods/services

Short Run

• Period of time where at least one factor of production is fixed

Long Run

• Period of time where no factors of production are fixed

Short Run AS

• Level of output by firms short-term

Long Run AS

• Potential output by economy long-term

SRAS (& explanation)

• Why it slopes upwards: profit incentive/maximisation