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dani
20/10/2022
Economics
Aggregate Demand and Supply
1,173
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20 Oct 2022
•
Simple Guide to Aggregate Demand and Supply for A-Level Economics
dani
@daniistypingtoo
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 (SRAS)
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 (influenced by exchange rates)
- Wages (cost of labour)
- Interest rates and taxes (e.g., VAT)
- Productivity (output per worker, per time period)
Long-Run Aggregate Supply (LRAS)
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 (Y*) 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.
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 (AD1 to AD2) indicates an increase in aggregate demand.
- A leftward shift (AD1 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 (or 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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The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.
Stefan S
iOS user
This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.
Samantha Klich
Android user
Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
Anna
iOS user
Best app on earth! no words because it’s too good
Thomas R
iOS user
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.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
David K
iOS user
The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!
Sudenaz Ocak
Android user
In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
Android user
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
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
iOS user
This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user
The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.
Stefan S
iOS user
This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.
Samantha Klich
Android user
Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
Anna
iOS user
Best app on earth! no words because it’s too good
Thomas R
iOS user
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.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
David K
iOS user
The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!
Sudenaz Ocak
Android user
In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
Android user
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
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
iOS user
This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user
Simple Guide to Aggregate Demand and Supply for A-Level Economics
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
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 (SRAS)
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 (influenced by exchange rates)
- Wages (cost of labour)
- Interest rates and taxes (e.g., VAT)
- Productivity (output per worker, per time period)
Long-Run Aggregate Supply (LRAS)
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 (Y*) 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.
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 (AD1 to AD2) indicates an increase in aggregate demand.
- A leftward shift (AD1 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 (or 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.
We thought you’d never ask...
What is the Knowunity AI companion?
Our AI Companion is a student-focused AI tool that offers more than just answers. Built on millions of Knowunity resources, it provides relevant information, personalised study plans, quizzes, and content directly in the chat, adapting to your individual learning journey.
Where can I download the Knowunity app?
You can download the app from Google Play Store and Apple App Store.
Is Knowunity really free of charge?
That's right! Enjoy free access to study content, connect with fellow students, and get instant help – all at your fingertips.
Can't find what you're looking for? Explore other subjects.
Students love us — and so will you.
4.9/5
App Store
4.8/5
Google Play
The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.
Stefan S
iOS user
This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.
Samantha Klich
Android user
Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
Anna
iOS user
Best app on earth! no words because it’s too good
Thomas R
iOS user
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.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
David K
iOS user
The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!
Sudenaz Ocak
Android user
In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
Android user
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
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
iOS user
This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user
The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.
Stefan S
iOS user
This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.
Samantha Klich
Android user
Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
Anna
iOS user
Best app on earth! no words because it’s too good
Thomas R
iOS user
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.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
David K
iOS user
The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!
Sudenaz Ocak
Android user
In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
Android user
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
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
iOS user
This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user