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Simple Guide to Aggregate Demand and Supply for A-Level Economics

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dani

20/10/2022

Economics

Aggregate Demand and Supply

Simple Guide to Aggregate Demand and Supply for A-Level Economics

Aggregate demand and supply are fundamental concepts in AQA A Level Economics. They illustrate the relationship between price levels and total output in an economy, providing insights into economic fluctuations and growth.

  • Aggregate demand represents the total demand for goods and services in an economy at different price levels.
  • Aggregate supply shows the total output firms can produce at various price levels.
  • The interaction between aggregate demand and supply determines the equilibrium price level and real GDP.
  • Shifts in aggregate demand and supply curves can be caused by various economic factors, leading to changes in economic activity.
  • The multiplier effect demonstrates how initial changes in spending can have a magnified impact on overall economic output.
...

20/10/2022

1167


<p>Aggregate demand is the total amount of demand for all finished goods and services produced in an economy.</p>
<h2 id="shiftsinaggregate

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Aggregate Supply

This page delves into the concept of aggregate supply, another fundamental element in AQA A Level Economics notes. It explores both short-run and long-run aggregate supply, as well as the classical model of aggregate supply.

Definition of Aggregate Supply

Definition: Aggregate supply shows the total productive potential or output of firms in an economy at any price level at a given point in time.

Short-Run Aggregate Supply SRASSRAS

The page illustrates the short-run aggregate supply curve and its determinants:

Vocabulary: SRAS refers to the total output firms can produce in the short term, where some factors of production are fixed.

Determinants of SRAS include:

  • Raw material prices influencedbyexchangeratesinfluenced by exchange rates
  • Wages costoflabourcost of labour
  • Interest rates and taxes e.g.,VATe.g., VAT
  • Productivity outputperworker,pertimeperiodoutput per worker, per time period

Long-Run Aggregate Supply LRASLRAS

Definition: Long-run aggregate supply represents the economy's productive capacity when all factors of production are fully employed.

The classical model of LRAS is depicted as a vertical line, suggesting that in the long run, output is determined by the quality and quantity of factors of production, not by the price level.

Highlight: The interaction between aggregate demand, short-run aggregate supply, and long-run aggregate supply explains how economies adjust to shocks and return to long-run equilibrium.

Adjustments in the Long Run

The page explains how the economy adjusts in the long run:

  • If aggregate demand increases, it initially leads to higher output and prices.
  • This increase in the cost of living prompts workers to demand higher wages.
  • Higher wages increase production costs, shifting the SRAS curve leftward.
  • The economy returns to its long-run equilibrium output YY* but at a higher price level.

Example: If there's an increase in government spending, it might temporarily boost output above the long-run level. However, as prices and wages adjust, the economy will eventually return to its long-run output level, but with higher prices.

This process demonstrates the self-correcting nature of the economy in the classical model, emphasizing the importance of understanding both short-run and long-run dynamics in A Level Economics.

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Economics

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20 Oct 2022

2 pages

Simple Guide to Aggregate Demand and Supply for A-Level Economics

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dani

@daniistypingtoo

Aggregate demand and supply are fundamental concepts in AQA A Level Economics. They illustrate the relationship between price levels and total output in an economy, providing insights into economic fluctuations and growth.

  • Aggregate demand represents the total demand for... Show more


<p>Aggregate demand is the total amount of demand for all finished goods and services produced in an economy.</p>
<h2 id="shiftsinaggregate

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Aggregate Supply

This page delves into the concept of aggregate supply, another fundamental element in AQA A Level Economics notes. It explores both short-run and long-run aggregate supply, as well as the classical model of aggregate supply.

Definition of Aggregate Supply

Definition: Aggregate supply shows the total productive potential or output of firms in an economy at any price level at a given point in time.

Short-Run Aggregate Supply SRASSRAS

The page illustrates the short-run aggregate supply curve and its determinants:

Vocabulary: SRAS refers to the total output firms can produce in the short term, where some factors of production are fixed.

Determinants of SRAS include:

  • Raw material prices influencedbyexchangeratesinfluenced by exchange rates
  • Wages costoflabourcost of labour
  • Interest rates and taxes e.g.,VATe.g., VAT
  • Productivity outputperworker,pertimeperiodoutput per worker, per time period

Long-Run Aggregate Supply LRASLRAS

Definition: Long-run aggregate supply represents the economy's productive capacity when all factors of production are fully employed.

The classical model of LRAS is depicted as a vertical line, suggesting that in the long run, output is determined by the quality and quantity of factors of production, not by the price level.

Highlight: The interaction between aggregate demand, short-run aggregate supply, and long-run aggregate supply explains how economies adjust to shocks and return to long-run equilibrium.

Adjustments in the Long Run

The page explains how the economy adjusts in the long run:

  • If aggregate demand increases, it initially leads to higher output and prices.
  • This increase in the cost of living prompts workers to demand higher wages.
  • Higher wages increase production costs, shifting the SRAS curve leftward.
  • The economy returns to its long-run equilibrium output YY* but at a higher price level.

Example: If there's an increase in government spending, it might temporarily boost output above the long-run level. However, as prices and wages adjust, the economy will eventually return to its long-run output level, but with higher prices.

This process demonstrates the self-correcting nature of the economy in the classical model, emphasizing the importance of understanding both short-run and long-run dynamics in A Level Economics.


<p>Aggregate demand is the total amount of demand for all finished goods and services produced in an economy.</p>
<h2 id="shiftsinaggregate

Sign up to see the contentIt's free!

Access to all documents

Improve your grades

Join milions of students

By signing up you accept Terms of Service and Privacy Policy

Aggregate Demand

Aggregate demand is a crucial concept in AQA A Level Economics, representing the total demand for all finished goods and services within an economy. This page explores the components and shifts in aggregate demand curves.

Definition of Aggregate Demand

Definition: Aggregate demand is the total amount of demand for all finished goods and services produced in an economy.

Shifts in Aggregate Demand Curves

The diagram illustrates how aggregate demand curves can shift:

  • A rightward shift AD1toAD2AD1 to AD2 indicates an increase in aggregate demand.
  • A leftward shift AD1toAD3AD1 to AD3 represents a decrease in aggregate demand.

Highlight: Shifts in the aggregate demand curve can be caused by various factors such as changes in consumer spending, investment, government expenditure, or net exports.

The Multiplier Effect

The page also introduces the concept of the multiplier effect:

Definition: The multiplier effect shows how an initial injection of spending can lead to a larger overall increase in GDP.

The diagram demonstrates this concept, showing how an initial injection can result in a more significant overall increase in GDP orrelatedmeasureslikeRealNationalIncome,RealNationalOutput,orRealNationalExpenditureor related measures like Real National Income, Real National Output, or Real National Expenditure.

Example: If the government increases spending on infrastructure by £1 billion, it could lead to a total increase in GDP of £3 billion due to the multiplier effect.

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Just amazing. Let's me revise 10x better, this app is a quick 10/10. I highly recommend it to anyone. I can watch and search for notes. I can save them in the subject folder. I can revise it any time when I come back. If you haven't tried this app, you're really missing out.

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Greenlight Bonnie

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very reliable app to help and grow your ideas of Maths, English and other related topics in your works. please use this app if your struggling in areas, this app is key for that. wish I'd of done a review before. and it's also free so don't worry about that.

Rohan U

Android user

I know a lot of apps use fake accounts to boost their reviews but this app deserves it all. Originally I was getting 4 in my English exams and this time I got a grade 7. I didn’t even know about this app three days until the exam and it has helped A LOT. Please actually trust me and use it as I’m sure you too will see developments.

Xander S

iOS user

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Elisha

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