Distinguish between Aggregate Demand and Aggregate Supply.
Answers
aggregate demand is the sum of consumption demand, investment demand, government demand for goods and services, plus net exports. Aggregate supply is simply total output gross domestic product the total production of goods and services in the economy. Both aggregate demand and aggregate supply are depicted as curves, with the price level on the vertical axis and income and output on the horizontal axis.
It should be noted that unlike the supply and demand curves for particular goods and services, where the quantity supplied or demanded is a well-defined function of the price of the good or service, the connection between the aggregate demand and supply curves and the overall price level is quite a bit more mysterious.
Aggregate supply is the cumulative amount of goods and services firms in an industry are willing to sell at a given price. Aggregate demand is the maximum quantity of goods and services to be purchased at the possible price level.
- AD shows total economic demand, whereas AS shows total economic supply
- AD covers all the sectors whereas AS only covers the company/business sector.
- AS is also known as the National Product / National Income / GDP, as the factors of production are produced by businesses as they produce the output and the output value generated = revenue generated, so AS = GDP or Y.