Question

Recall that the text defines aggregate demand and supply as follows: “Firms face four sources of demand: households (personal consumption), other firms (investment), government agencies (government purchases), and foreign markets (net exports). Aggregate demand is the relationship between the total quantity of goods and services demanded (from all the four sources of demand) and the price level, all other determinants of spending unchanged.” Aggregate supply is, “the level of output produced by firms to the price level in the long run.” Find a recent news article (within the last six months) which addresses one or more of the sources of demand. Based on the article, describe how the sources are shifting the demand. Is it increasing or decreasing? What is causing it? Will supply be sufficient to meet that demand level? Please answer in 150 words or more. Use your own words -

Answer 1

I am taking the example of Adani group opening coal mine Galilee Basin, Australia. It would be the largest coal mine in Australia and one of the largest in the world.

AD = C + I + G + (X-M)

Consumption of Coal would rise in Australia raising the ( C ) part of AD.

As Adani group is investing in Australia, other firms would gain confidence in Australian market and would be eager to invest there which raise the ( I ) part of Aggregate demand.

Exports would rise as that coal would be exported to other countries as well raising ( X ).

These all factors raise the AD and shift it to its right.Supply would reach the output level of Y1 in some time as firms get notified that demand in the market have risen, they would push their supply level in the market or some firms would use the inventory of them and start supplying more suddenly which would cover up the raised demand.