Week 4

Week 4 Team Deliverable

This week in Economics 561, the discussion centered on aggregate demand, aggregate supply, how these factors affect GDP, effect of unemployment on the economy, and the business cycle. The output that consumers are willing to buy can either increase or decrease the demand for goods. This increase or decrease can have a serious impact on the economy as a whole.

4.1 Aggregate demand, Aggregate supply, and GDP

Aggregate demand is the graph that represents the amount of output (goods or services) that consumers are willing to buy at each price. Realistically, if the price for a good or service increases, consumers are going to demand less of the output product. There is a decrease in demand as the price level increases, and the aggregate demand curve would start high up on the price and close to the y-axis to demonstrate low demand for the output. Then the curve will slope downward to show how the price is decreasing and the demand is increasing and getting further away from the y-axis as shown in Figure 29.1 (McConnell, 2009, p. 584). The aggregate demand demonstrates how sensitive consumers' demand is to the price of a good or service.

Aggregate supply is the graphical display of the price level for a good or service and the output that firms in the market actually produce and supply to consumers. Unlike the aggregate demand, the aggregate supply curve, in the sort-run, increases as the price level for the good or service increases, as shown in Figure 29.4 (McConnell, 2009, p. 589). Since the price level for a good affects both the aggregate demand and the aggregate supply, equilibrium occurs when the supply and demand for a certain price level are equal to one another. The real gross domestic product (real GDP) is the amount of the good that is being supplied and demanded, and it is established by using the equilibrium price level previously determined by the aggregate demand and supply (McConnell, 2009, p. 594). Any variation from the...