Question

Discuss the nature of aggregate demand and aggregate supply?   Why do we study them?

Give Atleast 1 paragraph ( 5-6 sentences) answer

Answer 1

Aggregate demand (AD) is a schedule reflecting the total quantity of goods and services demanded in an economy at every price level. It is downward sloping, signifying an inverse relationship between general price level and real output (GDP). It is the sum total of personal consumption expenditure, gross domestic private investment, government spending on goods and services and net exports.

Aggregate supply (AS) is a schedule that shows the total quantity of goods and services supplied by all firms in the economy at every price level. It is upward rising, signifying a direct relationship between general price level and real output (GDP).

Study of AD and AS is important because the equilibrium price level and equilibrium real output (GDP) is determined at intersection of AD and AS curves.