Answer to Question #189863 in Macroeconomics for aaron yeo

Question

Taxmania is a closed economy with government. Aggregate demand is described by , where denotes aggregate consumption,  denotes investment and  denotes government expenditure. Disposable income is denoted by ; income in Taxmania is taxed at a rate , while the government can also deduct taxes as a lump sum .

Answer 1

Aggregate demand is the sum of the planned expenditures for the purchase of the final product; it is the actual output that consumers (including firms and government) are willing to buy at a given price level. The main factor influencing is the general price level. Their relationship is reflected by a curve that shows the change in the total level of all costs in the economy depending on changes in the price level. The relationship between the real volume of production and the general level of prices is negative or inverse. Why? To answer this question, it is necessary to highlight the main components: consumer demand, investment demand, government demand and net exports, and analyze the impact of price changes on these components.

Aggregate demand

 - Demand of the country's population for consumer goods

 - Enterprise demand for investment

 - Government purchases (government orders)

 - Exported demand (foreign buyers of goods for export)

Aggregate supply (AS) is the total amount of final goods and services produced in the economy (in value terms). This concept is often used synonymously with the gross national product at every possible price level.