Answer to Question #89473 in Macroeconomics for Sofia Bale

Question

Which variables would have to be affected in each case to bring about the relevant changes in aggregate supply or aggregate demand?

Answer 1

Aggregate demand is the sum of consumer demand, investment demand, demand from the state and net exports. This means that all these types of demand affect aggregate demand.

You can select individual variables affecting aggregate demand:

Import purchases, inflation, price level, interest rate change, taxes, consumer welfare, consumer expectations, consumer debt, expected returns on investments, taxes on businesses, new technologies, excess capacity, government spending, net exports costs, exchange rates, national income of other countries (with an increase in income, countries increase purchases abroad).

The law of aggregate supply - with a higher price level, manufacturers have incentives to increase production and, accordingly, the supply of manufactured goods increases.

In addition to the price level, the aggregate supply variables includes: changes in prices for resources / raw materials, prices for imported resources, changes in productivity, new technologies / obsolescence of technologies, changes in taxes and state regulation, changes in the labor market