Aggregate Supply and Demand Essay -- Economics

Aggregate Supply and contendThe quantity theory can be shown graphical recordically in footing of the gist-supply aggregate- subscribe framework that has become popular inmacroeconomic textbooks. Aggregate read is the pith large number providespend, or flamboyant multiplied by velocity. If cash is 30 and velocity is7, make sense spending will be 210. Total spending of 210 can be dividedbetween monetary assesss and quantities in a number of ways. If the charge take aim(P) is 1, quantity (Q) will be 210. If P is 2, Q will be 105, if P is3, Q will be 70, if P is 5, Q will be 42, etc. When graphed with axesof footing take and transactions, aggregate beg has the form of arectangular hyperbola.1 This aggregate-demand curl is shown below asthe MV curve.The quantity theory assumes that transactions be mulish outsidethe bewilder by the availability of resources and by technology. Beca implementit assumes thither ar no accommodation problems, the aggregate supplycurve is the erect line shown in the graph supra as the T curve. Ateach price level the same quantity is available, or price level doesnot shape quantity supplied. The price level is determined by theintersection of these cardinal curves. If the hail of money attachs,the aggregate demand curve shifts to the right. Since transactions arefixed, the end results must be an increase in price level. regain that aggregate-supply and aggregate-demand curves aredescribing what happens in the grocery for goods and service, not inthe market for money balances. If there is a disturbance in the moneymarket, that disturbance is genetical to the goods-and-servicesmarket via the aggregate-demand curve. The quantity theory encouragesus to see a procure of goods as a sale of money, and a sale of goodsas a purchase of money. Changes in the resource market are transferredto the goods-and-services market via the aggregate supply curve. Thequantity theory does not see the market for goods and services as theplace disturbances begin. What we see possibility in this part of the deliverance is the result of events in early(a) sectors.though very simple, this model helps energise sense of a number ofhistoric events. For example, U. S. economic product in the late 19thcentury, spurred by increases in resources and improving technology,was faster than the growth in money stock. The graph above predictsdeflation... ...lry, tableware, and artistic purposes. Their actions will take a hopthe law of demand whenever a good becomes cheaper, people useto a greater extent of it. Thus if there is a abrupt influx of specious into a countrythat uses it as money, part of the influx will be turn to itscommodity use, and the effects on the numerate of money, and hence onthe price level, will be lessened. On the other hand, a sudden bloodlinewill also be cushioned, because as the commodity grows more valuable,people will transfer it from its commodity use into a monetary use. Ifthe amount of gold declines and it rises in revalue, there is an inducement to melt down jewelry, tableware, and artistic objects anduse the gold as money. thusly a doubling of gold may not double theamount of money, and cutting the amount of gold by one half may notcut money by one half.Second, if money falls in value, the inducement to disclose more of itis cut and if it rises in value, the incentive to produce more of itis raised. If the value of gold increases, more people will try tofind it, and if its value declines, fewer people will assay for it.The third reason takes us into the realm of international economics. Aggregate Supply and Demand Essay -- economic scienceAggregate Supply and DemandThe quantity theory can be shown graphically in terms of theaggregate-supply aggregate-demand framework that has become popular inmacroeconomic textbooks. Aggregate demand is the amount people willspend, or money multiplied by velocity. If money is 30 and velocity is7, total spe nding will be 210. Total spending of 210 can be dividedbetween prices and quantities in a number of ways. If the price level(P) is 1, quantity (Q) will be 210. If P is 2, Q will be 105, if P is3, Q will be 70, if P is 5, Q will be 42, etc. When graphed with axesof price level and transactions, aggregate demand has the form of arectangular hyperbola.1 This aggregate-demand curve is shown below asthe MV curve.The quantity theory assumes that transactions are determined outsidethe model by the availability of resources and by technology. Becauseit assumes there are no adjustment problems, the aggregate supplycurve is the vertical line shown in the graph above as the T curve. Ateach price level the same quantity is available, or price level doesnot influence quantity supplied. The price level is determined by theintersection of these two curves. If the amount of money increases,the aggregate demand curve shifts to the right. Since transactions arefixed, the end results must be an increa se in price level.Notice that aggregate-supply and aggregate-demand curves aredescribing what happens in the market for goods and services, not inthe market for money balances. If there is a disturbance in the moneymarket, that disturbance is transmitted to the goods-and-servicesmarket via the aggregate-demand curve. The quantity theory encouragesus to see a purchase of goods as a sale of money, and a sale of goodsas a purchase of money. Changes in the resource market are transferredto the goods-and-services market via the aggregate supply curve. Thequantity theory does not see the market for goods and services as theplace disturbances begin. What we see happening in this part of theeconomy is the result of events in other sectors.Though very simple, this model helps make sense of a number ofhistorical events. For example, U. S. economic growth in the late 19thcentury, spurred by increases in resources and improving technology,was faster than the growth in money stock. The graph abo ve predictsdeflation... ...lry, tableware, and artistic purposes. Their actions will reflectthe law of demand whenever a commodity becomes cheaper, people usemore of it. Thus if there is a sudden influx of gold into a countrythat uses it as money, part of the influx will be diverted to itscommodity use, and the effects on the amount of money, and hence onthe price level, will be lessened. On the other hand, a sudden declinewill also be cushioned, because as the commodity grows more valuable,people will transfer it from its commodity use into a monetary use. Ifthe amount of gold declines and it rises in value, there is anincentive to melt down jewelry, tableware, and artistic objects anduse the gold as money. Hence a doubling of gold may not double theamount of money, and cutting the amount of gold by one half may notcut money by one half.Second, if money falls in value, the incentive to produce more of itis cut and if it rises in value, the incentive to produce more of itis raised. If the value of gold increases, more people will try tofind it, and if its value declines, fewer people will search for it.The third reason takes us into the realm of international economics.