Discuss How Changes on Aggregate Demand Influence Price...

Diana Gaita Economics FB1 Discuss how changes on aggregate demand influence price levels, output levels and employment. The meaning of â€Å"aggregate† is added together. All of the elements introduced in microeconomics are totaled in macroeconomics. Aggregate demand and supply analysis brings together the amount that consumers wish to consume and firms wish to produce at any price levels. Aggregate demand (AD) is the total demand for final goods and services in the economy (Y) at a given time and price level. Also it is the amount of goods and services that will be purchased at all possible price levels in the economy. This is called the demand for the Gross Domestic Product of a country when inventory levels are static. The†¦show more content†¦Confidence in future sales patterns and government incentive and regulations will also affect the investment levels. Another injection in the economy is the multiplier effect of the investment. In the economy, the money invested today will have a greater impact such as increasing the levels of output in the future. This is because investment rises the capital stock. With an evolution in technology, the machineries help production become faster and cheaper, thus contributing greatly to increasing the output in long-term. * The Price Level and Net Exports: The Exchange-Rate Effect Exports represent an injection into the circular flow of income, in that the money paid for goods and services sold abroad enters the domestic flow of income. Imports mean that there is an outflow of money, and exports minus imports gives the total movement of funds known as net exports. There are a number of reasons why the value of net exports might change. If the exchange rate increases in value against other currencies, imports become cheaper and exports more expensive on world markets. Over time, people respond to these relative price movements and the demand for exports falls and the demand for imports rises. A stronger currency will worsen net exports, whereas a weaker currency will improve the figure. Also, for example if a fall in the UK price level causes UK interest rates to fall, the real exchange rateShow MoreRelatedDifference Between Fiscal And Monetary Policy Essay1345 Words   |  6 PagesU.S. economy is forever changing due to various factors. Some of these econom ic policies are also developed due to various factors or events that may have occurred in the United States. This paper will discuss some policies that stimulate the economy, their relation to aggregate supply and demand, and the effectiveness of stimulation these policies will have on the economy. 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