Chapter 13.3, Problem 1R

To determine

To state: The importance of terms given.

Explanation of Solution

The significance of the various terms is as explained below:

1. Aggregates: All individual parts in economy when summed together is termed as aggregates. Aggregates provide a total economic measure of the goods and services in an economy.

2. Aggregate demand: The aggregate demand is the total of all planned expenditures that are made in an economy. As the prices of products vary from one another, this cannot be related to individual prices rather it is related to the price level. This helps determine how much the people, business and government are planning to spend.

3. Aggregate demand curve:The aggregate demand curve shows the relationship of the real domestic output with the price level. The curve shows an inverse relationship. As with the decrease in price level of goods in an economy, more is the quantity of output, the slope goes downward. This curve help forecast economic conditions and whether consumers will spend more or less.

4. Aggregate supply: The aggregate supply is the total output that can be made by the producers on the basis of rise and fall of the price level. This helps determine the quantity that an economy is planning for selling in a specific time period.

5. Aggregate supply curve: The aggregate supply curve shows the relationship of the aggregate quantity supplied with the price level. The curve shows a positive relationship. As with the increase in price level of goods in an economy, more is the quantity of goods supplied, the slope goes upward. This curve helps find the quantity of real GDP that can be supplied by economy at different price levels.

Economics Concept Introduction

Introduction:

Aggregate demand and supply- The demand and supply law are applied to the economy and also to the individual decisions of consumers. Economists have to check the demand of goods and services according to the demand of all consumers and the supply by all producers of goods and services.