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Aggregate Demand is the total amount of Demand in the Economy at a given time. It is an important macroeconomic factor because it helps determine, forsee and ,when manipulated ,prevent inflation. Inflation is one of the the main macro-economic problems and is as important as unemployment.

2008-03-22 23:55:35
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What did Keynes sat causes unemployment?

Aggregate Demand

As GDP increases on the horizontal axis of your aggregate supply aggregate demand graph what is happening to the rate of unemployment?

it increases

What is Macroeconomic?

Macroeconomic is a a branch of economics that deals with the performance, structure, behavior and decision making of an economy as a whole instead of the individual markets.

How does unemployment lead to inflation?

Reduced unemployment leads to inflation by way of increased income, purchasing power, aggregate demand and prices.

What is a cyclical unemployment?

Cyclical Unemployment results from business recessions that occur when aggregate (total) demand is insufficient to create full employment.Cyclical Unemployment is due to contractions in the economy

What will happen when Aggregate demand and aggregate supply decrease?

When aggregate demand and aggregate supply both decrease, the result is no change to price. As price increases, aggregate demand decreases, and aggregate supply increases.

What is aggregate demand and what are the factors that affect aggregate demand?


Which of these is centered on aggregate demand?

Fiscal policy is centered on aggregate demand.

In an aggregate demand-aggregate supply diagram what will equal decreases in government spending and taxes do?

No effect. Spending will decrease Aggregate Demand, lower taxes will raise Aggregate Demand

Why interest rate has no affect on the aggregate demand?

The interest rate does affect aggregate demand. As the interest rate falls, aggregate demand increases and vice-versa.

What is Simple theory of Income Determination?

Total income depends on total employment which depends on effective demand which in turn depends on consumption expenditure and investment expenditure. Consumption depends on income and propensity to consume. Investment depends upon the marginal efficiency of capital and the rate of interest. J. M. Keynes made it clear that the level of employment depends on aggregate demand and aggregate supply. The equilibrium level of income or output depends on the relationship between the aggregate demand curve and aggregate supply curve. As Keynes was interested in the immediate problems of the short run, he ignored the aggregate supply function and focused on aggregate demand. And he attributed unemployment to deficiency in aggregate demand.

Fiscal and monetary policies are used to shift the aggregate supply curve or the aggregate demand curve?

Aggregate demand curve.

The quantity of full employment occurs when aggregate supply reaches what range?

When aggregate supply reaches the range of long run aggregate supply curve, or LRAS curve, full employment happens. Full employment is when there is no deficient-demand unemployment.

Using the AD-AS framework what is the impact on equilibrium price and output when there are increase in aggregate demand and aggregate supply simultaneously?

AD-AS represents aggregate demand curve (AD) and aggregate supply curve (AS). "In the aggregate demand-aggregate supply model, each point on the aggregate demand curve is an outcome of the IS-LM model for aggregate demand Y based on a particular price level. Starting from one point on the aggregate demand curve, at a particular price level and a quantity of aggregate demand implied by the IS-LM model for that price level, if one considers a higher potential price level, in the IS-LM model the real money supply M/P will be lower and hence the LM curve will be shifted higher, leading to lower aggregate demand; hence at the higher price level the level of aggregate demand is lower, so the aggregate demand curve is negatively sloped

What is cyclic unemployment?

This type of unemployment exists due to inadequate effective aggregate demand. It gets its name because it varies with the business cycle, though it can also be persistent, as during the Great Depression of the 1930s.

The quantity of full employment in the aggregate supply aggregate demand model is similar to the conditions in which other model?

The quantity of full employment in the aggregate supply aggregate demand model is similar to the conditions in which other model. (Market Supply and Demand.)

What will happen if Aggregate demand increases and aggregate supply decreases?

An increase in aggregate demand and a decrease in aggregate supply will result in a shortage: there will be more goods and services demanded than that which is being produced.

How would a rise in business investment affect the aggregate demand curve?

The aggregate demand curve shifts to the right

What is demand push inflation?

Demand-pull is caused by an increase in aggregate demand.

Definition of demand-pull inflation?

Demand-pull Inflation is asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve. This is commonly described as "too much money chasing too few goods".

Do monetarists argue that the Natural rate of unemployment can be reduced by macroeconomic policies designed to stimulating aggregated demand?

They do, but inflation will result, the monetarist view of the natural rate is that it is the non accelerating inflation rate of unemployment (NAIRU) to move below this will result in high inflation and is therefore not worth the benefit of the reduced unemployment.

What the primary difference between aggregate demand curve and individual demand curve?

aggregate demand curve is the total sum of all the individual demand curves while individual demand curve is the demand made by the single individual.

How Fiscal and Monetary Policy can be used to address macroeconomic problem?

Fiscal Policy: changing government spending or taxes to shift aggregate demand. Monetary Policy: Fed controls interest rates and supply of money by buying or selling bonds, changing the reserve ratio, and/or changing the discount rate (rate at which banks lend to each other) i.e. Fed increases money supply by buying bonds --> nominal interest rate drops --> Investment increases --> aggregate demand increases

What is equilibrium output?

It is the output of an economy that equates aggregate supply with aggregate demand.

An increase in interest rates affects aggregate demand by?

An increase in interest rates decreases the aggregate demand shifting the curve to the left.