Economics Assignment Paper on Aggregate Demand

Aggregate Demand

The collective demand of all the services and goods desired by people at a given price level and time in a country’s economy is the sum of all expenditures, including government, consumer, net exports and investment expenditures, constituting the Gross Domestic Product (GDP). This paper aims at illustrating the demand in economics.

Aggregate demand curve helps to bring out the relationship between output and price changes where they are not interdependent, such as the level of prices change, the output changes. Components of aggregate demand are Consumption, Investment, Government spending, and Net exports represented in an equation as; AD=C(Y-T) +I(r) +G+ (X-M)

C represents consumption, which is derived as income (Y) less taxes (T). I represent investment determined by the interest rate(r), G is the government spending, which is relatively constant and not affected by the rates and (X-M) which represents the net exports derived from exports(X) less the imports (M).

main Economic Indicators.

    Money supply is a crucial indicator in the economy. It can be useful to show the level of demand of a given produced goods or services and even a type and location of a business investment in the country.

Gross Domestic Product can be used to adjust the monetary policy because it indicates how fast the profits grow and what return on capital is expected thus able to determine what the society is worth, its’ wealth.

           Consumer price index is a statistics on change of individuals’ cost of living and thus an important indicator that can be relied upon for consumption. It also includes those taxes that are paid for when the specific goods were purchased.

Survey of consumer’s confidence on their habits of spending, as they tend to spend on goods, services, and when they feel confident and comfortable with their finances is an important indicator to be considered, especially for business investment.