Aggregate demand and its change. Aggregate Demand and Aggregate Supply
Aggregate demand and factors determining it
Aggregate supply and its factors
Macroeconomic Equilibrium Between Real Output and Price Level
Questions for independent work
Tests
Tasks and problem situations
Literature
8.1. Aggregate demand and factors determining it
Aggregate demand. Aggregate demand curve. The process of combining separately taken prices of goods into the aggregate price (price level), converting the equilibrium quantity of individual goods into the real volume of national production is called ahregistration. If the essence of aggregation is understood, it becomes possible to move to the analysis of aggregate demand and aggregate supply, because the curves of these concepts can be constructed only on the basis of clarifying the relationship between the aggregate price (price level) and the real volume of national production, which are deposited on the ordinate and abscissa axes, respectively.
Aggregate demand- this is the need for goods and services on the part of the population, enterprises, the state and foreign states, represented in monetary form. It is an abstract model of the relationship between the price level and the real volume of national production. The general characteristic of this model is that the lower the level of prices for goods, the greater part of the real volume of national production will be able to acquire buyers. Conversely, a higher level of prices is accompanied by a drop in the possible volume of sales of the national product. Consequently, there is an inverse relationship between the price level and the real volume of national production. It is most clearly expressed through the aggregate demand curve (Figure 8.1).
Rice. 8.1. Aggregate demand curve
Downward curve shape AD shows that at a lower price level, a larger volume of the national product will be sold.
Cumulative price factorsdemand. The price factors of aggregate demand should include, first of all, the effect of the interest rate, the effect of material values, or
O ~ X real cash balances, and the effect
import purchases.
Interest rate effect affects the nature of the movement of the aggregate demand curve in such a way that, on the one hand, consumer spending depends on its level, and on the other, investments, i.e. as the price level rises interest rates, and the rise in interest rates is accompanied by a reduction in consumer spending and investment. The point is that an increase in the price level increases the demand for cash. Consumers need additional funds to make purchases, entrepreneurs - to purchase raw materials, equipment, pay wages, etc. If the volume money supply does not change, the price for using money is inflated, i.e. interest rate, and this limits spending on both purchases and investments. It follows from this that an increase in the level of prices for goods increases the demand for money, raises the interest rate and thereby reduces the demand for the real volume of the produced national product.
Wealth effect (wealth effect) also reinforces the downward trajectory of the aggregate demand curve. This is due to the fact that with the rise in prices, the purchasing power of such financial assets as fixed-term accounts, bonds decreases, the real income of the population falls, which means that the purchasing power of families decreases. If prices fall, then purchasing power increases and costs increase.
Effect of import purchases expressed in the ratio of national prices and prices for international market... If prices on the national market rise, buyers buy more imported goods, and the sale of domestic goods decreases on the international market, i.e. the effect of import purchases leads to a decrease in the aggregate demand for domestic goods and services. The decline in commodity prices enhances the export opportunities of the economy and increases the share of exports in the aggregate demand of the population.
Non-price factors of aggregate demand. These include changes in consumer, investment and government spending, and in spending on net exports. The action of non-price factors is also accompanied by changes v aggregate demand. If it contributes to an increase in aggregate demand, then the curve from the line ADj shifts to AB 2 ; if non-price factors limit aggregate demand, the curve shifts to the left towards AD 3 (fig. 8.2).
Changes in consumer spendingdah can affect aggregate demand under the influence of various motives. Let's give a good example with the purchase of imported goods. Previously, a variant of the action of price factors was given, in which a change in the level of prices in the external and internal markets leads to a change in aggregate demand in one way or another.
Rice. 8.2. Change aside. However, similar changes in the available demand come at constant prices: it turns out, for example, that the Austrian footwear that has appeared on the Italian market is of high quality and the demand for these products will go up at equal prices. There are many such options for the action of non-price factors, but they are classified according to individual characteristics, and then, within the same consumer spending, factors affecting aggregate demand, such as consumer welfare, consumer debt and taxes, can be distinguished.
If we turn to the factor of consumer welfare, we can see that it depends on the state of affairs in the field of financial assets (stocks, bonds) and the situation with real estate (land, buildings). Thus, an increase in the share price at a constant level of prices in the market will lead to an increase in welfare and aggregate demand will increase. At the same time, falling land prices will reduce wealth and reduce aggregate demand.
Examples of consumer expectations can also be cited. If consumers expect to increase their income in the not too distant future, they will already start spending significantly more of their income now, which will shift the aggregate demand curve to the right. In the opposite perspective, buying action will be limited and the aggregate demand curve will shift to the left. The shift in aggregate demand in the event of impending inflation is very sensitive. Each buyer tries to make a purchase before the price increase, but will delay it in the first days after the increase.
The amount of aggregate demand is also influenced by consumer debt. If a person has acquired a large item on credit, then within a certain time he will limit himself to other purchases in order to quickly pay the required amount. But once you pay off the debt, the demand for purchases increases rapidly.
There is a direct relationship between the amount of income tax and aggregate demand. The tax reduces household income, so an increase in it reduces aggregate demand, and a decrease expands the latter.
Investment changes also affect aggregate demand. If enterprises with the aim of expanding production will acquire additional funds, the aggregate demand curve will go to the right, and in the opposite trend - to the left. Interest rates, expected return on investment, business taxes, technology, excess capacity can act and be influenced here.
When it comes on the interest rate, I do not mean its shift up or down (this was taken into account in price factors), but the movement under the influence of changes in the money supply in the country. An increase in the money supply lowers the rate of interest and increases investment, while a decrease in the supply of money increases the rate of interest and restricts investment. Expected profits increase the demand for investment goods, and business taxes reduce the demand for invested goods. New technologies stimulate investment processes and expand aggregate demand, while the presence of excess capacity, on the contrary, constrains the demand for new investment goods.
Government spending affect aggregate demand due to the fact that with constant tax collections and interest rates, government purchases of the national product expand, thereby increasing the consumption of commodity values.
Aggregate demand is also associated with the cost of exporting goods. The principle is this: the more goods enter the world market, the wider the aggregate demand. The fact is that an increase in the national incomes of other countries allows them to expand the purchase of imported goods and products, which expands the demand for goods in those countries from which commodity values are imported. Therefore, for developed countries, foreign trade is beneficial both with developing and developed countries. In the first case, they have the opportunity to sell products that are not in demand in civilized markets, in the second, on the contrary, to cover the demands of other states for modern goods and services.
The main (basic) macroeconomic model is the model of "aggregate demand - aggregate supply" ( "AD - AS"). It allows, firstly, to identify the conditions of macroeconomic equilibrium, to determine the value of the equilibrium volume of production and the equilibrium level of prices, secondly, to explain fluctuations in the volume of production and the level of prices in the economy, thirdly, to show the causes and consequences of these changes, and, finally, describe the different options economic policy the state.
Aggregate demand (AD) Is the sum of the demands of all macroeconomic agents (households, firms, government and foreign sector) for final goods and services. The components of aggregate demand are: 1) household demand, i.e. consumer demand ( WITH); 2) the demand of firms, i.e. investment demand ( I); 3) demand from the state, i.e. government procurement of goods and services ( G); 4) the demand of the foreign sector, i.e. net exports ( Xn). Therefore, the aggregate demand formula is as follows:
AD = C + I + G + Xn.
This formula is similar to the formula for calculating GDP by spending. The difference is that the GDP formula is the sum actual the costs of all macroeconomic agents that they made during the year, while the aggregate demand formula reflects the costs that intend to do macroeconomic agents. The magnitude of these aggregate costs, that is, the magnitude of aggregate demand, depends primarily on the price level.
The value of aggregate demand is the amount of final goods and services for which demand will be presented by all macroeconomic agents at each given price level. The higher the general price level, the lower will be the value of aggregate demand and the less expenses will be made by all macroeconomic agents for the purchase of final goods and services. Consequently, the dependence of the value of aggregate demand on the general level of prices is inverse and graphically it can be represented in the form of a curve with a negative slope (Fig. 3.1). Each point of the aggregate demand curve (curve AD) shows the cost of the amount of final goods and services for which demand will be presented by all macroeconomic agents at each possible price level.
Rice. 3.1. Aggregate demand curve
In fig. 3.1 the abscissa represents real GDP (aggregate demand) Y, measured in monetary units (in dollars, marks, rubles, etc.), i.e., a value indicator, and on the ordinate is the general price level (GDP deflator), measured in relative values. At a higher price level ( R 1) the value of aggregate demand ( Y 1) will be less (point A) than at a lower price level ( R 2), which corresponds to the value of aggregate demand ( Y 2) (point B).
The aggregate demand curve cannot be obtained by summing individual or market demand curves. This is due to the fact that the total values are plotted along the axes. Thus, an increase in the general price level (GDP deflator) does not mean an increase in prices for all goods in the economy and can occur in conditions when the prices of some goods are decreasing, while prices for some remain unchanged. Accordingly, the negative slope of the aggregate demand curve also cannot be explained by the effects explaining the negative slope of the individual and market demand curves, that is, the substitution effect and the income effect. For example, the replacement of relatively more expensive goods with relatively cheaper ones cannot affect the value of aggregate demand, since it reflects the demand for all final goods and services produced in the economy for the entire real GDP, and a decrease in the value of demand for one good is compensated by an increase in the value of demand for another. Negative slope of the curve AD is explained by the following effects:
1)
real wealth effect(the effect of real cash reserves), or Pigou effect(in honor of the famous English economist, colleague of J.M. Keynes at the Cambridge School, student and follower of Alfred Marshall, Professor Arthur Pigou, who introduced the concept of real money reserves into scientific circulation). Real wealth, or real money reserves, is understood as the ratio of the nominal wealth of an individual ( M), expressed in monetary terms, to the general price level ( R):
real money reserves = M / R.
Thus, this indicator is nothing more than real purchasing power of nominal wealth a person, which can be represented by both cash (monetary financial assets) and securities (non-monetary financial assets, i.e., stocks and bonds) with a fixed par value. As the price level rises, the purchasing power of nominal wealth falls, that is, for the same amount of nominal stocks of money, fewer goods and services can be bought than before.
The Pigou effect is as follows: if the price level rises, then the amount of real money reserves (real wealth) decreases and people feel relatively poorer than before and reduce consumption, and since consumption (consumer demand) is part of aggregate demand, then the amount of aggregate demand;
2) interest rate effect, or Keynes effect. Its essence is as follows: if the price level rises, then the demand for money increases, since people need more money to buy goods that have risen in price. People withdraw money from bank accounts, the ability of banks to issue loans is reduced, credit resources become more expensive, therefore, the “price” of money (the price of a loan), that is, the interest rate, grows. And since loans are primarily taken by firms, using them to purchase investment goods, the rise in the cost of loans leads to a reduction in investment demand, which is part of the aggregate demand, and, therefore, the value of aggregate demand decreases.
In addition, an increase in the interest rate also reduces consumer spending: on the one hand, not only firms, but also households take out a loan ( consumer credit), especially for the purchase of durable goods, and its rise in price leads to a decrease in consumer demand, and on the other hand, an increase in the interest rate means that a higher income is now paid on savings, which stimulates households to increase savings and reduce consumer spending. The amount of aggregate demand, therefore, decreases even more;
3) effect of import purchases(net export effect), or the Mundell-Fleming effect: if the price level rises, then the goods of a given country become relatively more expensive for foreigners and therefore exports are reduced. Imported goods are becoming relatively cheaper for the citizens of a given country, so imports are increasing. As a result, net exports decrease, and since they are part of aggregate demand, the value of aggregate demand decreases.
In all three cases, the relationship between the price level and the value of aggregate demand is inverse, therefore, the aggregate demand curve (curve AD) must have a negative slope.
These three effects show the impact price factors (changes in the general price level) for magnitude aggregate demand and determine the movement along the aggregate demand curve. Non-price factors influence myself aggregate demand. This means that the amount of aggregate demand changes equally at each possible price level, which, in turn, determines shift crooked AD... If, under the influence of non-price factors, aggregate demand increases, the curve AD shifts to the right, and if it shrinks, then it shifts to the left.
The non-price factors of change in aggregate demand include all factors that affect the value of aggregate costs:
1) factors affecting total consumer spending, such as:
a) welfare (W). The higher the level of well-being, that is, the amount of wealth, the more consumer spending and the greater the aggregate demand - curve AD moves to the right. Otherwise, it shifts to the left;
b) current income level (Yd). An increase in the level of income leads to an increase in consumption and, accordingly, to an increase in aggregate demand (there is a shift in the curve AD to the right);
An increase in government procurement increases aggregate demand (a shift in the AD to the right), and their decrease - reduces;
4) factors affecting net exports, such as:
a) and national income in other countries (Yworld). The growth of GDP and personal income in the foreign sector leads to an increase in demand for goods and services of a given country and, consequently, to an increase in its exports, and, as a result, to an increase in net exports, which increases aggregate demand (curve shift AD to the right);
b) gross national product and national income in a given country (Ydomestic). If the GDP and personal income in a country increase, then its economic agents begin to present a greater demand for goods and services of other countries (foreign sector), which leads to an increase in imports and, consequently, to a decrease in aggregate demand in this country (curve AD moves to the left);
v) national currency exchange rate (e). The exchange rate is the price of a national monetary unit in the monetary units of another (or other) country, that is, the amount of foreign currency that can be obtained for one monetary unit of a given country. Growth exchange rate national monetary unit reduces net exports and leads to a decrease in aggregate demand (shift of the curve AD left).
Change in net exports as a result of changes in the exchange rate as a non-price factor in the change in aggregate demand, shifting the curve AD, should be distinguished from the effect of import purchases, in which a change in net exports occurs as a result of the action of a price factor (i.e., a change in the price level), which changes the value of aggregate demand and causes movement along the curve AD.
Non-price factors that also affect aggregate demand and explain the shifts in the curve AD, are monetary factors... This is because the curve AD can be obtained from the equation of the quantitative theory of money (also called exchange equation, or Fisher's equation- in honor of the famous American economist Irving Fisher, who proposed a mathematical formula for a derivation that followed from the quantitative theory of money, which appeared in the 18th century. and developed in the works of D. Hume, and later D. Ricardo, J. - B. Say, A. Marshall, etc.):
MV = PY,
where M- the mass (quantity) of money in circulation; V- the speed of circulation of money (a value that shows the number of revolutions that, on average, one currency unit, or the number of transactions that, on average, one monetary unit serves per year); P- the level of prices in the economy (GDP deflator); Y- real GDP.
From this equation, we get the inverse relationship between the value of GDP and the price level:
Y = (MV) / P.
This means that price factors (price level changes) affect magnitude aggregate demand, causing movement along the curve AD... From the same equation, we obtain two non-price factors of aggregate demand, a change in which changes myself aggregate demand and shifts the curve AD:
1) amount of money in circulation... If the money supply in the economy increases, then all economic agents feel richer and increase their expenses. A rise in aggregate spending leads to an increase in aggregate demand and shifts the curve AD to the right. In addition, an increase in the supply of money in the economy lowers the interest rate (the price of money, that is, the price of credit), and the lower the interest rate, the more, as we have already noted, both consumer and investment costs and, therefore, the greater the total demand. Conversely, a decrease in the supply of money in the economy reduces aggregate demand, shifting the curve AD to the left.
The regulation of the money supply is carried out central bank country. This is what lies at the heart of monetary policy, with the help of which the state can carry out a stabilization policy, influencing the aggregate demand;
2) velocity of circulation of money... An increase in the velocity of money circulation leads to an increase in aggregate demand: if each monetary unit (with a constant quantity in circulation) will make more turnovers and serve more transactions, then this is equivalent to an increase in the value of the money supply, which leads to an increase in aggregate demand.
Aggregate supply (AS) is the value of the amount of final goods and services that all producers (private firms and state-owned enterprises) offer to the market (for sale). As in the case of aggregate demand, we are not talking about the actual volume of production, but about the amount of aggregate output that all producers ready(intend to) produce and offer for sale on the market at a certain price level.
The dependence of the value of the aggregate supply (aggregate output) on the price level in the short run is direct: the higher the price level, i.e., the higher prices producers can sell their products, the greater the value of the aggregate supply. This means that you can plot the aggregate supply curve (the curve AS), each point of which shows the value of the aggregate supply at each given price level. In this way, price magnitude aggregate supply and explain the movement along crooked AS.
Non-price by itself aggregate supply and shifting curve AS, are all factors that change the cost per unit of production. So, if costs increase, then the total supply decreases and the curve AS moves up to the left. If costs decrease, then the total supply increases and the curve AS moves down to right.
Most non-price factors affect aggregate supply in the short run, but some of them can lead to long-term changes in aggregate supply.
Note that the concepts of short-term and long-term periods in macroeconomics differ from the corresponding concepts in microeconomics, where the criterion for dividing into short-term and long-term periods is change in the amount of resources, while in macroeconomics such a criterion is change in resource prices... In the short term, resource prices either do not change at all, or are disproportionate to the change in the general price level. In the long run, resource prices change, and in proportion to the change in the general price level.
Non-price factors affecting the aggregate supply include:
1) resource prices (R resources). The higher the prices for resources, the higher the costs and the lower the total supply. The main components of costs are, firstly, the prices of raw materials and materials, secondly, the wage rate (the price of labor) and, thirdly, the interest rate (payment for capital, that is, the price of renting capital). Thus, the interest rate is a non-price factor in both aggregate demand and aggregate supply. Rising resource prices shift the curve AS to the left upwards, and their decrease - to the shift of the curve AS right down. In addition, the value of prices for resources is influenced by:
a) amount of resources available to the country (the amount of labor, capital, land and entrepreneurial ability). The more resources a country possesses, the lower the prices of resources;
b) prices for imported resources... Since resources, especially natural resources, are unevenly distributed between countries, changes in prices for imported resources for a resource-importing country can have a significant impact on the aggregate supply. The rise in prices for imported resources increases costs, reducing the aggregate supply (curve AS moves up to the left). An example of the negative impact of rising prices for imported resources on aggregate supply is the oil shock of the mid-1970s. (a sharp increase in oil prices by oil-producing countries - members of the international OPEC cartel), which led to a sharp reduction in the aggregate supply in most developed countries and caused stagflation;
v) the degree of monopoly in the resource market... The higher the monopolization of resource markets, the higher the prices for resources, and therefore for costs, and, consequently, the lower the total supply;
2) resource performance, that is, the ratio of total production to costs. Resource productivity is the reciprocal of the cost per unit of output: the higher the resource productivity, the lower the costs and the greater the total supply. An increase in productivity occurs if (a) the volume of output increases at the same costs, or (b) costs are reduced with the same volume of output, or (c) both occur.
The main reason for the growth of resource productivity is scientific and technological progress, which ensures the emergence and use in production of new, more advanced and productive technologies, more productive equipment and requires an increase in the level of qualifications and professional training of workers. Therefore, this factor affects the aggregate supply not only in the short term, but also in the long term, leading to a shift in the long-term curve. AS and providing the economic growth... Technology (technological progress) affects both aggregate demand and aggregate supply;
So, if a person wants to provide an amount of 10 thousand dollars for his pension, then at a rate of 10% he must accumulate 100 thousand dollars, and at a rate of 20% - only 50 thousand dollars.
Graphically, the ratio of investment and savings in the Keynesian model is shown in Fig. 3.4. Since savings do not depend on the interest rate, their graph is a vertical curve, and investments are weakly dependent on the interest rate, therefore, they can be depicted as a curve with a slight negative slope. If savings increase to S 1, then the equilibrium interest rate cannot be determined, since the investment curve I and a new savings curve S 2 have no intersection point in the first quadrant. Hence, the equilibrium interest rate ( Re) should be looked for on another, namely - money market(according to the ratio of demand for money MD and money offers MS) (fig. 3.5).
4. Since prices are rigid in all markets, the equilibrium of the markets is established not full-time resources. So, in the labor market (Fig. 3.3, a) the nominal wage rate is fixed at the level W 1, in which firms present a demand for a number of workers equal to L 2. The difference between LF and L 2 are the unemployed. Moreover, in this case, the cause of unemployment is not the refusal of workers to work for a given nominal wage rate, but the rigidity of this rate. Unemployment from voluntary turns into forced: workers would agree to work at a lower rate, but employers have no right to reduce it. Unemployment is getting serious economic problem.
Rice. 3.4. Investment and savings in the Keynesian model
Rice. 3.5. Money market
On the commodity market(fig. 3.3, v) prices also "stick" at a certain level ( R one). A decrease in aggregate demand as a result of a decrease in income due to the presence of unemployed (note that unemployment benefits were not paid) and therefore a decrease in consumer spending leads to the inability to sell all manufactured products ( Y 2 < Y*), giving rise to a recession (decline in production). A downturn in the economy affects investor sentiment, their expectations about future internal return on investment, and leads to their pessimism, which causes a decrease in investment spending. Aggregate demand falls even more.
5. Since private sector spending (consumer spending by households and investment spending by firms) is not able to provide the amount of aggregate demand corresponding to potential GDP (i.e., such a value at which it would be possible to consume the volume of output produced under the condition of full employment of resources) , then an additional macroeconomic agent should appear in the economy, either presenting its own demand for goods and services, or stimulating the demand of the private sector and thus increasing aggregate demand. This agent, of course, should be the state. This is how Keynes justified the need for government intervention and state regulation economy.
6. The main economic problem (in conditions of underemployment of resources) becomes the problem aggregate demand, not aggregate supply, i.e. Keynesian model studies the economy from the side of aggregate demand.
7. Since the stabilization policy of the state, that is, the policy of regulating aggregate demand, affects the economy in the short term, the Keynesian model also describes the behavior of the economy in short term("Short-run"). Keynes did not consider it necessary to look far into the future, to study the behavior of the economy in the long run, wittily remarking that "in the long run we are all dead."
In the short run, the aggregate supply curve SRAS(short-run aggregate supply), if the economy has a large number of unoccupied resources(as, for example, it was during the Great Depression), has horizontal view. This is the so-called "extreme Keynesian case" (Fig. 3.6, a). When resources are not limited, prices for them do not change, so costs do not change and there are no prerequisites for a change in the level of prices for goods. However, in modern conditions, the economy has an inflationary character, the rise in prices for goods does not occur simultaneously with an increase in prices for resources (as a rule, there is a lag, i.e., a time lag, therefore, an increase in prices for resources occurs disproportionately the growth of the general price level) and the expectations of economic agents are becoming increasingly important, then in macroeconomic models(both neoclassical and neo-Keynesian) curve short-term aggregate supply ( SRAS) is graphically depicted as a curve having positive slope(fig. 3.6, b).
Long-run aggregate supply curve ( LRAS) is depicted as vertical curve (fig. 3.7, a), since in the long run the markets come to mutual equilibrium, the prices of goods and resources change proportionally to each other(they are flexible), agents' expectations change and the economy tends to the potential volume of production. At the same time, the real volume of output does not depend on the price level and is determined by the country's production potential and the amount of available resources. Since the value of the aggregate supply does not change with a change in the price level, the price factors do not render influence on the value of aggregate supply in the long run (movement along the vertical curve of long-term aggregate supply from point A to point B). When the price level rises from R 1 to R 2, the output remains at its potential level ( Y *).
Rice. 3.6. Short-run aggregate supply curve
Basic non-price factor which changes by itself aggregate supply in the long run and determines shift crooked LRAS(fig. 3.7, b), Is a change in quantity and (or) quality (productivity) economic resources, which underlies changes in the production potential of the economy and, consequently, changes in the value potential output(from Y 1 * up Y 2 *) at each price level. An increase in the quantity and (or) improvement in the quality of economic resources shifts the curve LRAS to the right, which means economic growth. Accordingly, a decrease in the quantity and (or) a deterioration in the quality of economic resources leads to a decrease in production capacity economy, a decrease in the value of the potential volume of output (shift of the curve LRAS left).
The value of the aggregate supply in the short run depends on the price level. The higher the price level ( R 2 > R 1), i.e., the higher the price at which producers can sell their products, the greater the value of the aggregate supply ( Y 2 > Y 1) (fig. 3.7, v). The dependence of the value of the aggregate supply on the price level in the short run is straight, and the short-term aggregate supply curve has a positive slope. In this way, price factors (general price level) affect magnitude short-term aggregate supply and explain the movement along crooked SRAS(from point A to point B).
Rice. 3.7. The impact of price and non-price factors on the aggregate supply.
Factors: a, in- price, b, d- non-price
Non-price factors affecting by itself aggregate supply in the short run and shifting the aggregate supply curve, as already discussed earlier, are all factors that change the cost per unit of production. If costs rise, the aggregate supply shrinks and the aggregate supply curve shifts upward to the left (from SRAS 1 to SRAS 2). If costs decrease, then the aggregate supply increases and the aggregate supply curve shifts to the right and down (from SRAS 1 to SRAS 3) (fig. 3.7, G).
Equilibrium in the model "AD - AS" is set at the intersection of the aggregate demand curve and the aggregate supply curve. The intersection coordinates give the value of the equilibrium output (equilibrium GDP) and the equilibrium price level. Changes in either aggregate demand or aggregate supply (curve shifts) lead to changes in the equilibrium and equilibrium values of GDP and the price level.
Rice. 3.8. Consequences of increasing aggregate demand in the "AD - AS" model
In fig. 3.8 shows that the consequences of change (in this case, growth) aggregate demand depends on of the kind the aggregate supply curve. So, in the short run, if the curve AS horizontal, growth AD leads only to an increase in the equilibrium volume of output ( Y 1 increases to Y 2) without changing the price level (Fig. 3.8, a). If the curve of short-term aggregate supply has a positive slope, then an increase in aggregate demand results in an increase in the equilibrium value of output (from Y 1 to Y 2), and the equilibrium price level (from R 1 to R 2) (fig. 3.8, b). In the long run, a change in aggregate demand does not affect the equilibrium value of output (the economy remains at the level of potential GDP - Y*), but only affects the change in the equilibrium price level (from R 1 to R 2) (fig. 3.8, v).
The change aggregate supply has the same consequences whatever from the type of curve AS... As seen from Fig. 3.9, an increase in aggregate supply in all three cases (if the aggregate supply curve is horizontal, has a positive slope and is vertical) leads to an increase in the equilibrium level of output (from Y 1 to Y 2) and a decrease in the equilibrium price level (from R 1 to R 2). The difference is that in the short run (with a shift SRAS) the value of actual GDP grows (Fig. 3.9, a and fig. 3.9, b), while in the long run (with a shift LRAS) the potential GDP increases ( Y*), i.e. the production capabilities of the economy (Fig. 3.9, v).
Consider economic mechanism equilibrium changes in the model "AD - AS" in the short and long term (Fig. 3.10). Suppose that the economy is initially in a state of short-term and long-term equilibrium (point A), where all three curves intersect: AD, SRAS and LRAS... If the aggregate demand increases, then the curve AD shifts right to AD 2 (fig. 3.10, a). The growth in aggregate demand leads to the fact that entrepreneurs begin to sell off stocks and increase production, attracting additional resources, and the economy gets to point B, where the actual volume of production ( Y 2) exceeds potential GDP ( Y*). Point B is a point short-term short-term of the aggregate supply).
Attraction of additional resources (above the level of full employment) requires additional costs, therefore, the costs of firms grow and the total supply decreases (the curve SRAS gradually moves up to SRAS 2), as a result of which the price level rises (from R 1 to R 2) and the value of aggregate demand decreases to Y*. The economy returns to the long-term aggregate supply curve (point C), but at a higher than the original price level. Point C (like point A) is a point long-term equilibrium (intersection of the aggregate demand curve with the curve long-term of the aggregate supply). Therefore, one should distinguish between equilibrium GDP and potential GDP. On our chart equilibrium GDP corresponds to all three points: A, B and C, while potential GDP corresponds only to points A and C when the economy is in a state long-term balance. At point B, actual GDP, i.e. equilibrium GDP in short term period.
Rice. 3.9. Consequences of Aggregate Supply Growth in the "AD - AS" Model
Similarly, you can consider the establishment of long-term and short-term equilibrium in the economy, if the curve AS has a positive slope (fig. 3.10, b). The difference here is that when justifying the transition of the economy from point A to point B, it must be borne in mind that with an increase in aggregate demand, firms not only sell stocks and increase production (which for some time is possible without raising prices for resources), but and increase the prices of their products. So first the economy moves along crooked SRAS, since only price factor and grows magnitude aggregate supply. As a result, the economy gets to the point short-term equilibrium (point B), which corresponds not only to a higher than at point A, the volume of output ( Y 2), but also a higher price level ( R 2). Since resource prices have not changed, but the price level has increased, real income (for example, real wage) decreased ( W / P 2 < W / P one). The owners of economic resources begin to demand higher prices for resources (for example, nominal wages), which leads to higher costs (impact non-price factor) and a reduction in aggregate supply ( shift left up curve SRAS), which leads to an even greater increase in the price level (from R 2 to R 3). As a result, the economy gets to point C, corresponding to long-term equilibrium and potential GDP.
Rice. 3.10. Shifting from short-term to long-term equilibrium
Aggregate demand and aggregate supply shocks.
A shock is an unexpected sudden change in either aggregate demand or aggregate supply. Distinguish between positive shocks (unexpected sharp increase) and negative shocks (unexpected sharp decline) AD and AS.
Positive shocks aggregate demand shift the curve AD to the right. Positive shocks aggregate supply shift the curve AS: down if it has a horizontal form ( SRAS); right down if it has a positive slope ( SRAS); to the right if it is vertical ( LRAS).
Negative shocks aggregate demand shift the curve AD to the left, and negative shocks aggregate supply shift the curve AS depending on its type up (SRAS), left up (SRAS) or to the left (LRAS).
The reasons for positive shocks in aggregate demand can be either a sharp unexpected increase in the supply of money, or an unexpected sharp increase in any of the components of aggregate spending (consumer, investment, government or foreign sector). The mechanism and consequences of the impact of a positive shock in aggregate demand on the economy are actually considered above (Fig. 3.10), and in the short term are manifested in the form inflationary gap release when actual GDP exceeds potential ( Y 2 > Y*), which ultimately leads to an increase in the price level (inflation).
The opposite are the consequences of a negative shock (sharp reduction) in aggregate demand (Fig. 3.11), the reasons for which can be either an unexpected reduction in the supply of money (compression of the money supply), or a sharp reduction in aggregate spending. In the short term, this leads to a decrease in the volume of output and means a transition of the economy from point A to point B - a point of short-term equilibrium (a decrease in aggregate demand, that is, aggregate costs, causes an increase in firms' inventories, overstocking, the inability to sell manufactured products, which is the reason curtailment of production). Appears recession gap output - a situation when the actual GDP is less than the potential ( Y 2 < Y*). In conditions perfect competition entrepreneurs will begin to reduce prices for their products, the price level will decrease (from R 1 to R 2), i.e. deflation will occur (in economic literature therefore you can come across the concept deflationary gap), the value of aggregate demand will increase (movement along crooked AD), and the economy will get to point C - point long-term equilibrium, where the volume of production is equal to the potential.
Such a situation can only take place in conditions of perfect competition. In case of imperfect competition, the so-called "Ratchet effect"(A ratchet in technology is a mechanism that allows the device to move only forward).
Rice. 3.11. Negative Aggregate Demand Shock
In macroeconomics, the "ratchet effect" is manifested in the fact that prices easily rise, but it is practically impossible to reduce them, which is primarily due to the rigidity of the nominal wage rate (in modern conditions, neither workers nor trade unions will allow it to decrease), which constitutes a significant part of the costs firms and, therefore, the prices of goods.
Negative aggregate supply shocks (Figure 3.12, a) are usually called price shocks because they are caused by changes leading to higher costs and therefore price levels. These reasons include:
1) rise in prices for raw materials being one of the main cost components;
2) union struggle for an increase in the nominal wage rate (if the struggle is successful and wages increase significantly, then the resulting increase in costs leads to a reduction in the aggregate supply);
3) state environmental measures(laws on environmental protection require firms to increase their costs for the construction of treatment facilities, the use of filters, etc., which affects the volume of production);
4) natural disasters leading to serious destruction and damaging the economy, etc.
A negative shock to aggregate supply affects the economy only in the short term, since, as a rule, the government takes measures to stimulate aggregate supply in order to prevent a decrease in the country's productive potential, i.e., a decrease in GDP in the long run (potential GDP). This is precisely the situation that took place in the mid-1970s. due to the oil shock.
The sharp rise in the prices of oil and other energy resources increased costs and led to a reduction in aggregate supply in the short run (curve shift SRAS left up to SRAS 2). As a result simultaneously there was a serious decline in production, i.e., a recession, or stagnation (GDP decreased from Y* before Y 2 and was at this low level for a fairly long time), and the rise in the price level (from R 1 to R 2), i.e. inflation (point B in Figure 3.12, a). This situation in the economic literature is called "stagflation" (from the merger of the words "stagnation" and "inflation"). The governments of developed countries, fearing a reduction in economic potential due to high unemployment, have done everything possible to increase aggregate supply (return the curve SRAS, ensuring GDP growth and inflation reduction). If the government does not take any measures, then they say that it adjusts to the shock, hoping that the aggregate supply will gradually increase and the economy itself, with the help of the market mechanism, will overcome the consequences of the negative supply shock and return to its original position (from point B to point And in Fig.3.12, a).
Rice. 3.12. Aggregate supply shocks:
a) negative; b) positive
Positive an aggregate supply shock (Figure 3.12, b) are usually called technological shock, since a sharp increase in aggregate supply, as a rule, is associated with scientific and technological progress, and above all with the improvement of technology. Technological changes lead to an increase in resource productivity, which is one of the most important factors in increasing aggregate supply. The emergence of technological innovation leads first to growth short-term aggregate supply (curve SRAS 1 moves right down to SRAS 2). The volume of issue in the short term increases to Y* 2, and the price level decreases to R 2. But as changes in technology increase the productive capacity of the economy, there is a shift to the right of the long-run aggregate supply curve. Therefore, point B also becomes a point of long-term equilibrium. Potential GDP increases (from Y* 1 to Y* 2). The economy is experiencing economic growth.
Just as there are fluctuations in supply and demand in individual markets, supply and demand at the level national economy, i.e. aggregate demand and aggregate supply are also subject to fluctuations and can be in an equilibrium or non-equilibrium state.
Aggregate supply - it is the sum of the values of all goods and services offered for sale or the real volume of production at each possible price level.
Aggregate demand - these are the needs presented in the market in monetary form by the population, the state, enterprises and foreign states, i.e. it is the volume of goods and services that consumers, entrepreneurs and governments plan to buy at every possible price level.
Aggregate demand and aggregate supply are determined, respectively, by the sum of individual demand and supply.
Principles of constructing curves of aggregate demand for blood pressure and aggregate supplyASare the same as the supply and demand curves at the micro level.
The aggregate demand curve of AD shows that at a certain point in time for any price level there is a quantity of goods and services for which the aggregate demand is presented (Fig. 1).
Fig. 1. Aggregate demand curve
Aggregate demand is influenced by both price and non-price factors (Fig. 2.).
Rice. 2. Factors affecting aggregate demand
Interest rate effect is that as the general price level rises, interest rates also rise. Most investment goods, like durable goods, are purchased through borrowed funds. An increase in the general price level leads to an increase in demand for credit resources, an increase in interest rates, and a decrease in demand for goods from the population and entrepreneurs. The low level of prices affects the decrease in the interest rate and thereby stimulates the growth of consumption and investment, and, consequently, the aggregate demand.
Wealth effect manifests itself in a change in real value and purchasing power financial assets and income of the population. Thus, a decrease in prices will contribute to an increase in real incomes and an increase in aggregate demand; inflation, on the contrary, will reduce the purchasing power of the population and aggregate demand.
Effect of import purchases takes place when prices for domestic and foreign goods change. If the prices of goods inside the country rise, then their export becomes difficult and becomes expensive. At the same time, the demand for cheaper imported goods is increasing. As a result, net exports will decrease, and hence aggregate demand. An increase in exports and a decrease in imports will contribute to an increase in aggregate demand.
Conclusion: a change in all these factors leads to a change in aggregate demand and a shift in its curve: to the left downward when it decreases and to the right upward when demand increases.
Aggregate supply curve A S shows the relationship between the real volume of production and the level of prices. At the same time, there is a direct relationship: the higher the price level, the greater the interest in additional production of goods and services.(fig. 3.).
Rice. 3. Aggregate supply curve
Factors affecting the aggregate supply, in one way or another are associated with production costs. Among them are the following (Fig. 4.).
Under the influence of these non-price factors, changes in production costs per unit of output occur at a given price level for these products, the total supply changes and its AS curve shifts: upward to the right with a decrease in unit costs and an increase in total supply and downward to the left with an increase in unit costs and a decline in aggregate supply.
Rice. 4. Factors influencing the aggregate supply
Macroeconomic Supply Model
- Aggregate demand as a model of consumed GNP in the economy. Influence of price and non-price factors on AD (aggregate demand)
- Aggregate supply (AS) as the volume of national production. Features of the AS line (aggregate supply line). Influence of price and non-price factors on AS
- Macroeconomic equilibrium and factors disturbing it
A. Business cycles
B. Inflation
C. Unemployment
1. Aggregate demand as a model of consumed GNP in the economy. Influence of price and non-price factors on AD (aggregate demand)
The basic concepts of macroeconomics include aggregate variables, i.e., aggregate demand, aggregate supply (AS) is the basis for studying fluctuations in the volume of national production and the level of prices in the economy as a whole, as well as the causes and consequences of their changes.
Aggregate demand is determined as the real volume of national production that consumers of the enterprise and the state are ready to buy at various possible price levels.
The relationship between the price level and the real volume of national production, for which demand is presented, is inverse.
Hence the AD curve has a negative slope.
Economists associate the explanation for the negative slope of the AD curve:
- With the effect of the interest rate
- With the effect of wealth (effect of real class remnants)
- With the effect of import purchases
Interest effect rates shows, that for a given volume of money supply, a higher price level will increase the demand for money, thereby increasing the interest rate and decreasing the volume of purchases of consumer goods and equipment, which are sensitive to the size of the interest rate.
The wealth effect shows that inflation reduces the real value or purchasing power of fixed-value financial assets held by households and thereby forces them to cut consumer spending.
With an increase in the price level, the effect of import purchases leads to a decrease in exports and an increase in imports => in general, to a decrease in the aggregate demand for domestic goods and services.
The movement along the AS curve reflects the change in the value of aggregate demand depending on the dynamics of the general price level
However, there are non-price factors, affecting the change in price demand. These include factors affecting household consumer spending, investment spending by firms, government spending and net exports.
Non-price factors of aggregate demand
- Change in consumer spending
A. Consumer Welfare
B. Debt
- Change in investment costs
A. Interest rates
B. Expected return on investment
C. Taxes from businesses
D. Technology
E. Overcapacity
- Change in government spending
- Change in spending on net exports
A. National income in foreign countries
B. Exchange rates
2. Aggregate supply (AS) as the volume of national production. Features of the AS line (aggregate supply line). Influence of price and non-price factors on AS
Aggregate supply shows the level of real cash volume of national production at each possible price level.
The relationship between the price level and the volume of the national product that producers are ready to produce and offer for sale on the market is a direct or positive value, since higher price levels create incentives for production growth.
There is disagreement among academic economists about the shape of the aggregate demand (AS) curve
Representatives of the classical and neoclassical schools describe the behavior of the economy in the long run and argue that the entire aggregate supply curve is vertical
Keynesians look at the functioning of the economy over relatively short periods of time and believe that the aggregate supply curve is either horizontal or has a positive slope. Therefore, economists depict the aggregate supply curve, consisting of 3 segments:
1 segment - horizontal ("Keynesian")
2 segment - intermediate
3 segment - vertical ("classic")
Aggregate supply curve AS sets direct relationship between the price level and the real volume of national production, all other things being equal
AS curve shifts to the right with the growth of the aggregate supply
AS curve shifts to the left with a decrease in the aggregate supply and under the influence of non-price factors
Non-price factors have one thing in common: when they change, then the cost per unit of production also changes. Changes in unit costs in turn affect the growth or decrease in aggregate supply.
Non-price factors of aggregate supply:
- Change in resource prices
- Change in factor productivity
- Changes in legal regulations (taxes, subsidies, government regulation)
The equilibrium level of prices and the equilibrium volume of national production presupposes equality AD = AS
F-point of macroeconomic equilibrium in underemployment without price increases
- the point of macroeconomic equilibrium with a slight increase in the price level and the state of the economy close to full employment
- the point of macroeconomic equilibrium in conditions of full employment, but with inflation
The displacement of the curves AD and AS affects the equilibrium volume of national production and the equilibrium level of prices.
- With a given aggregate supply, the shift of the aggregate demand curve to the right in the Keynesian segment leads to an increase in the real volume of national production, but does not change the price level.
- In the intermediate segment
A shift of AD to the right means an increase in the real volume of national production and an increase in prices from P to the same occurs
- On the classic stretch.
An increase in the price level with a constant real volume of production
An increase in aggregate demand in the intermediate and classical segments entails an increase in prices, but a reverse decrease in aggregate demand within a short time does not lead to a fall in the price level. Economists called this condition the "Hropovik effect"
To offer
- Increase in AS. Offset AS to the right. Indicates an increase in production capabilities.
- Decrease in AS. Offset AS to the left
Inflation due to rising production costs. This situation is negative for the economy, since there is a simultaneous rise in prices and a decrease in employment.
The AD-AS model shows that the macroeconomic equilibrium in the commodity market changes under the influence of price changes in both aggregate demand and aggregate supply. The consequences of changes in these macroeconomic variables m b. both positive and negative.
Negative changes include: underemployment, high price levels
3. Macroeconomic equilibrium and factors that violate it
A.Business cycles and phases of business cycles
B.Unemployment. Its reasons and forms. Socio-economic consequences. Okun's law
C.Inflation. Methods for measuring inflation. Inflation reasons. Anti-inflationary policy the state.
D.The relationship between inflation and unemployment. Phillips curve
A... Business cycles and phases of business cycles
Any economic system seeks to achieve full employment of economic resources, a stable price level and potential GNP, however, as a result of the action of factors that violate the macroeconomic equilibrium, economic growth is not equilibrium, but is interrupted by periods economic instability, therefore, economic growth manifests itself as a trend, and the economy develops cyclically.
Cyclicity - the general form of movement of the national economy, reflecting its unevenness. Characteristic cyclicity - movement not in a circle, but in a spiral.
Economic cycle - fluctuation of the actual volume of GNP around its potential value, which is achieved in conditions of full employment of resources. In the theory of the business cycle, there are:
- Trend
The cycle involves the return of the economy to the same position
Trend- a long-term trend of changes in the actual GNP, reflected by a trend line, so that in the long run it is smoothed out by fluctuations in the actual GNP.
GNP Tp
Time (usually a year)
A-B - a state of crisis
D-E - stagnation (depression)
E-K - revitalization
- AB is characterized as follows: in the crisis phase, there is a violation of proportionality in the development of the economy, which manifests itself in the overproduction of goods, i.e. AS> AD, in the growth of unemployment, lack of money necessary for payments for the supply of products, bankruptcy of enterprises.
The crisis in this phase first affects the sphere of circulation (trade, stock market, and then a violation of the monetary system as a whole)
In Western literature:
- Recession (decline) - AD
- Revitalization - DK
The reasons for the economic cycle are a violation of aggregate demand and aggregate supply, that is, a violation of AD = AS. D. Keynes believed that this is due to the lack of aggregate demand
The main indicators characterizing the course of the economic cycle:
- Deviation of actual GNP from potential GNP
- Economic growth rate
- Unemployment rate
Classification of economic crises:
- By scope:
A. Industrial crisis
B. Agrarian crisis
C. Energy Crisis
D. Oil crisis
E. Currency crisis
- By duration of action:
A. Short Term ("Kitchin Cycles") Lasting. Associated with fluctuations in consumer
B. Medium Term (“Jugler Cycles”) Lasts Associated with fluctuations in investment, inflation and unemployment. Allocate:
i. Industrial cycles of the late 19th century. Marx investigated them. years last. The main reason is the renewal of fixed capital (according to Marx)
ii. Jugler's economic cycles. 10 years have passed. Associated with a disruption of the monetary system
iii. Construction cycles (Kuznets cycles). They are coming. The reason is the change in investment in the construction of industrial buildings, housing structures.
C. Long-term (Kondratieff cycles). He associated them with the scientific and technological revolution and the transition from one technological mode of production to another.
B... Unemployment.
Full employment in the economy is impossible, since at any time in any country there is unemployment.
Unemployment- a macroeconomic phenomenon that, along with inflation, determines the poverty index of the population.
Reasons for unemployment:
- Mismatch between supply and demand in the market
- According to Keynes, the lack of aggregate demand AD and, in particular, insufficient investment in the economy
Salary
unemployment
L - amount of labor
Unemployed- part of the labor force without the given time work, but actively looking for it.
Labor force (L) - all persons of working age, which includes both persons employed in production (E) and not employed in production (U)
Unemployment rate
There are 3 forms of unemployment:
- Frictional, which exists at any phase of the economic cycle
- Structural (caused by technological changes in production, i.e. reforms, the transition from one type of production to another, etc.)
- Cyclical (inherent in the phase of crisis and depression) It is associated with a reduction in production "due to a reduction in production"
In the 70s of the 20th century, the monitoringist Friedman introduced the concept of "natural unemployment rate"
This level corresponds to the concept of full employment of resources. That. employment is considered full in the absence of cyclical unemployment and ranges from (
The main thing economic impact- GNP underrelease, i.e. the lag of the actual GNP differs from the potential
Okun's Law, which states: if the unemployment rate exceeds the natural level by 1%, then the GNP lags by 2.5%
RB is characterized by the following features:
- Large share of hidden unemployment
- High proportion of young unemployed
- High proportion of women among the unemployed
State methods of eliminating unemployment:
- Active
- Passive
The active ones include the creation of additional jobs, the system of retraining of personnel, vocational guidance, the development of the private sector of the economy.
Passive includes: creating a system social insurance and helping the unemployed
C. Inflation. Methods for measuring inflation. Inflation reasons. Anti-inflationary policy of the state
Inflation is a macroeconomic phenomenon that is associated with the functioning of the money supply. Inflation is an imbalance between supply and demand, manifested in an increase in the general level of prices and a decrease in the purchasing power of money
There are several ways to measure inflation:
- Price indexing, i.e. comparison of the general price level of the current period with the general price level of the reference period
This method predetermines the following types of price indices:
A. Consumer Price Index
B. Index of goods for industrial purposes:
C. GNP difflator:
1. Aggregate demand and its determinants.
2. Aggregate supply and factors that determine it.
3. The relationship between aggregate demand and aggregate supply at the equilibrium point.
1) Aggregate demand and its determinants. Aggregate demand is a curve-like model that shows the real national production (REAL) that consumers (households, businesses, government, and foreigners) are willing to buy at a specific price over a period of time.
Aggregate demand is influenced by the following price factors:
§ Interest rate effect. If the price level rises, then, other things being equal, the demand for money increases, which leads to an increase in the interest rate on loans. As a result, aggregate demand is shrinking due to a slowdown in investment processes at enterprises and a decrease in household purchases of goods on credit.
§ The effect of income and wealth. When the price level rises, the material and financial assets of the population and enterprises are depreciated. All other things being equal, the population becomes poorer. Those. it will spend less. Aggregate demand is decreasing.
§ The effect of import purchases. With an increase in the level of prices for goods and services of national production, domestic products become more expensive and, other things being equal, the demand for similar imported goods, which have become relatively cheaper, will increase. As a result, the aggregate demand for domestic products will decrease.
Aggregate demand is also influenced by non-price factors that shift the aggregate demand curve to the right / left. Accordingly, the aggregate demand for goods and services increases / decreases.
Non-price factors that shift the aggregate demand curve include:
§ Consumer spending. The following sub-factors affect the change in consumer spending:
Consumer welfare. Material values Consist of all the assets that consumers own: financial assets and real estate. A sharp decline in the real value of assets will lead to an increase in consumer savings as a means of restoring their welfare. As a result, consumer spending will decline and aggregate demand will decrease.
Consumer expectation. The expectation of higher prices and higher income in the future will lead to an increase in aggregate demand in the current period and vice versa.
Customer debt. The increased level of consumer debt resulting from previous purchases on credit can force him to cut operating expenses in order to recover debts, which will lead to a decrease in aggregate demand.
Personal taxes. Downgrade tax rates will lead to an increase net income and an increase in the number of purchases at a given price level. Aggregate demand is on the rise.
§ Investment costs. The following sub-factors affect the change in investment costs:
Interest rates. All other things being equal, an increase in interest rates leads to a decrease in investment costs. Aggregate demand is shrinking.
Expected return on investment. Favorable predictions for obtaining a return on invested capital make investments more attractive, which as a result leads to an increase in aggregate demand and vice versa.
Business taxes. An increase in corporate taxes will lead to a decrease in profits remaining at the disposal of the enterprise. Accordingly, investment costs go down - as does aggregate demand.
Technologies. New technologies tend to stimulate investment spending and, as a result, to increase aggregate demand.
Excess capacity. The presence of excess capacity in enterprises (i.e., unused capital) constrains the demand for new investments, i.e. reduces aggregate demand.
§ Government spending. An increase in government purchases of the national product at a given price level leads to an increase in aggregate demand as long as tax levies and interest rates will be unchanged.
§ Net export. The change in net exports is influenced by two sub-factors:
National income of other countries. If the national income of other countries increases, i.e. As the purchasing power of foreign consumers increases, this can lead to an increase in net exports and, accordingly, to an increase in aggregate demand.
Impact of exchange rates. Example: in the event of a depreciation of the RUR against USD, Russian exported goods in USD will cost less than similar imported products. A decrease in the price of an exported product may lead to an increase in demand for it abroad. Those. net exports are increasing and, accordingly, aggregate demand is growing.
2) Aggregate supply and factors that determine it. Aggregate supply is a curve-shaped model that shows the real volume of national production (NPC) that entrepreneurs can and are ready to offer at a specific price over a certain period of time.
I segment- Keynesian segment. The volume of the national product changes at a constant price level.
II segment- Ascending / Intermediate. The volume of the national product and the level of prices change in direct proportion.
III segment- Vertical / Classic. The volume of the national product is unchanged, but the price level is changing.
Aggregate supply is influenced by non-price factors leading to a shift in the aggregate supply curve. Non-price factors include:
§ Resource prices. The change in resource prices is influenced by such sub-factors as:
Availability of internal resources. An increase in the supply of domestic resources, for example, natural resources, capital, etc. leads to lower prices for them. As a result, the cost of producing a unit of output is reduced and, consequently, the total supply increases.
Prices for imported resources. If the prices for imported resources used in the production of goods and services decrease, then the cost of production decreases and the total supply increases.
Market dominance. It is the ability to set prices higher than what they would be if there was competition. As a result, an increase in resource prices increases the cost of producing a unit of output and the aggregate supply falls.
§ Labor productivity. V general view productivity is understood as the ratio of real output to costs. An increase in productivity means that with the available amount of resources / costs, it is possible to obtain a large value of the RNP and vice versa.
§ Changes in legal regulations. There are two categories of such changes:
Changes in taxes and subsidies.
o Raising business taxes can lead to higher unit production costs and, consequently, to a reduction in aggregate supply, and vice versa.
o Allocation of subsidies to enterprises reduces production costs, which leads to an increase in aggregate supply.
Changes in the nature of government regulation. In most cases, the strengthening of state regulation of the activities of enterprises leads to an increase in costs associated with a large volume of reporting and clerical work. As a result of the increase in production costs, the aggregate supply falls.
3) The relationship between aggregate demand and aggregate supply at the equilibrium point.
Increase in aggregate demand.
An increase in aggregate demand in the first horizontal segment from to leads to an increase in RNP from to without affecting the price level. An increase in aggregate demand in the II intermediate segment from level to leads to a simultaneous increase in the general level of prices and RNP. Despite the rise in prices, inflation as such does not appear in its pure form, since the rise in the price level is accompanied by an increase in production. An increase in aggregate demand in the III classical segment from level to leads to an increase in the general level of prices from to with a constant volume of the national product. Those. the potential for production is completely exhausted and the economy is full of employment and full production.
Decrease in aggregate demand.
If, after an increase in aggregate demand, it begins to decrease, then the equilibrium state will move from point to point and not to point. This means that with a decrease in aggregate demand, the price level remains the same, and the RNP drops sharply to the level.
Such a phenomenon (when the price level does not decrease following a decrease in aggregate demand) is called the manifestation of the ratchet effect. The reason for the ratchet effect is the inelasticity of prices during a decline in production. The inelasticity of prices is due to the following reasons:
§ At many enterprises the price is formed on the basis of the cost + margin principle. In most cases, salary takes a large share of the costs. As a rule, the level of wages does not tend to decrease with a decline in production. Therefore, the price level remains the same or even increases. There are the following reasons for the fact that salary does not decrease with a decline in production:
Many employees work on a contract / contract basis. The agreement / contract stipulates a certain level of salary, which cannot be changed until the expiration of the agreement / contract.
Many enterprises are not inclined to lower the level of wages since its decrease leads to a decrease in the incentive to work. At the same time, the enterprise will incur more losses than it is expected to save from a decrease in the salary fund.
In large enterprises, significant investments are associated with improving the workforce and these investments give a return over a long period of time. Thus, the administration will not go to cut skilled workers and to reduce their wages in order to reduce the general fund of wages.
Will lead to inflation due to rising costs, i.e. the general price level will rise from to, and the RNP will decrease from to.