For this assignment you are to write a 34 page not including

For this assignment you are to write a 3-4 page (not including title page, references etc.) report in APA format that provides: A) A list and explanations of the components of Aggregate Demand and what kinds of economic conditions will cause it to rise, along with those that will cause it to fall. B) A list and explanations of the components of Aggregate Supply and what kinds of economic conditions will cause it to rise, along with those that will cause it to fall. You should write for an audience with broad general experience who know little about aggregate demand and supply and want clear, well informed explanations. In addition to the book, at least two scholarly sources must be used and referenced. All work submitted must be your own.

Solution

Components of aggregate demand -

There are four components of aggregate demand - Consumption, Investment, Government spending and Net exports. Aggregate demand shows negative relationship between price level and real gross national product. The components of aggregate demand are impacted by following factors-

1. Consumption - Consumer confidence impacts consumption expenditure of the economy because when consumers are confident about their future income and job security then consumption level in the economy will rise. Lower interest rate also increase consumption because it is cheaper to borrow and vice versa. Increase in wealth of the consumer also increase consumption and shift aggregate demand curve rightwards.

2. Investment - Since, interest rate is the cost of investment, thus investment spending and interest rates are negatively related to each other. Increase in business confidence also increases investment spending of the businesses. Incentives by the government like tax breaks, subsidies also increase investment level. Increase in national output also increases investment level of the country.

3. Government spending - It is categorized as transfer payment and capital spending. Increase in government spending shifts the aggregate demand curve of the economy to right.

4. Net exports - It is the difference between value of exports and value of imports. Trade policy and exchange rate impact net exports of the economy. Increase in the Net exports shift the aggregate demand curve of the economy to right.

Aggregate supply refers to total production of goods and services in the economy. The main components of aggregate supply are Consumption and Savings. National income or aggregate supply is the sum of consumption expenditure and savings in an economy. The curve can be represented by a 45 degree line from the origin. Technology is assumed to be constant in short run, thus output can be increased by employing more labor in the short run.