Aggregate demand and aggregate supply, factors affecting them

Macroeconomic policy pursues the following goals: economic growth, the optimality of the foreign trade balance, the increase in employment, the reduction of inflation, and the desire for a balance of supply and demand to be established.

The situation in the market is unstable and financial specialists are constantly on the alert so that the enterprise can react to changes in time. The aggregate demand and the aggregate supply are necessarily studied. The first indicator is the volume of production of domestic producers, which the government, enterprises and consumers will be able to buy at different price levels.

An important factor affecting aggregate demand and aggregate supply is the cost of production. If the level of prices for domestic products increases, the costs of buyers are sharply reduced. With a decline in the cost of goods, more people begin to buy them. Thus, there is a relationship between cost and demand level that is negative or inverse. This relationship can be displayed on the graph. The demand curve shows the changing incomes of consumers. When the price level rises, we move up the curve. But do not think at the same time that the total nominal income of the country decreases, because the money circulates in a circle. They will return again to consumers, the state in the form of wages, taxes, rents, etc.

Aggregate demand and aggregate supply also depend on non-price factors. Consider what affects the purchasing power:

1) The effect of wealth. Many people store their savings in assets (term deposits, stocks, bonds, etc.), they have a certain nominal value. If there is an increase in prices, then the assets begin to depreciate. As a result, the population of the country becomes poorer.

2) Changes in consumer spending on products related to debt growth, market expectations, taxes and welfare.

3) Investment costs. They include such components as interest rates, corporate taxes, excess capacity, technology, expected profits.

4) Government expenditure. This subject of the market is one of the largest buyers. If the state allocates funds for certain purchases, the aggregate demand grows.

5) Expenses on net exports. Here we take into account: exchange rates, national incomes in foreign countries.

The aggregate demand line moves to the right, when the population's spending on the purchase of products is growing. This happens when the quality of life changes: wages rise, deflation, increase in money in circulation, etc. The following factors have the opposite effect: higher taxes, higher prices, propensity to save, etc.

The aggregate supply is the volume of production at each price level. At a higher cost of products, organizations are more likely to increase output of goods than at low prices. The relationship between the aggregate supply and the price level is positive or direct. The curve on the graph is presented in the form of three segments:

1) horizontal;

2) deviating upwards;

3) vertical.

Price factors show the movement of the aggregate supply along the line.

Non-price factors are numerous:

1) Cost of resources.

2) Legal norms.

3) The level of performance.

The increase in aggregate supply is caused by the following factors: rising prices, cutting production costs, improving technology. The aggregate supply curve will move to the right when labor productivity rises. When demand starts to increase at a faster rate than production, there is a depreciation of money. Aggregate demand and aggregate supply are constantly interrelated.