Define about aggregate demand and aggregate supply.

Subject Economics
NU Year Set: 2.(a) Marks: 4 Year: 2012

Aggregate demand is the overall demand for all goods and services in an entire economy. It's a macroeconomic term that describes the relationship between everything bought within a country and prices. Everything purchased in a country is the same thing as everything produced in a country. Therefore, aggregate demand equals the gross domestic product of that economy.

Aggregate demand is the total quantity of goods and services that are demanded by consumers in an economy at any given price level (Baumol & Binder 1994). According to Mundell-Fleming’s equation, the aggregate demand for goods and services in an open economic system is given as:

Y=C + I + G + (X-M)


Aggregate supply, also known as total output, is the total supply of goods and services produced within an economy at a given overall price level in a given period. It is represented by the aggregate supply curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally, there is a positive relationship between aggregate supply and the price level.

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