Ф D Vocabulary

Complete each sentence with a word or phrase from the box.

aggregate availability behave exports long run predict required short run trend

The price of a flight often depends on the of seats.

Tecluiology is making it easier and easier to changes in the weather.

When talking about the..................... we mean

the total.

Some people.................... very differently

when they go abroad.

The................... means in the next few weeks

or months.

The................... means in the coming years

or decades.

China's................... include all kinds of

manufactured goods.

Л lot of raw materials................... for

manufacturing are imported.

Prices aire still following a...................

to increase.

I^f Ro^Hinn 9

Aggregate demand and aggregate supply

When a company makes plans for how much to produce and what prices to set. it needs information. The company needs to predict the level of supply that will he required to meet demand. It needs to set prices that will keep the business running. In the same way. governments need this information for the whole economy The total level of demand for all products and services is called the иццгецаw (h'numd. The total supply is called the иццгецate supply.

The demand for products and services is how much is wanted. Foi a company, the demand conies from customers, for a whole economy, things are a little more complicated. Demand in the whole economy comes from the following

from consumers, because they buy products and services (consumption)

from companies, because they invest money to build factories and buy machines (investment)

from the government, because they spend money on services and projects (government spending I

Real National Income

Prices

Figure 2:

Aggregate Supply

I O'H) run

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from exports, because these arc sales to customers in other countries (export)

Although aggregate demand is made up ot' many tilings, it Ih huii S in the same way as demand tor a single produet For example, demand rises when incomes rise. The same applies to aggregate demand Similarly, demand falls as prices rise. The same is true for aggregate demand. You can see this relationship shown in figure 1 on page <»A I'he vertical axis shows prices The horizontal axis >hows real national income Real national income is the value of all the services and products produced by the whole economy. It's calculated in the same way as aggregate demand (consumption, investment, government spending and exports). You can see from the curve that national income (and therefore aggregate demand) increases as prices fall

Changes in any of the four things which make up aggregate demand will cause a shift in demand For example, if the government decides to spend a huge amount of money on building new hospitals and schools, this will have an effect on the whole economy. Aggregate demand will increase at all price levels. This is shown in aggregate demand curve 2 (Al>2) in figure 1

ГЬе supply curve for an individual product or service is very simple As the company increases its supply to the market, it increases the price, lint what about aggregate supply for the whole economy'' This is more complex. In the short run. aggregate supply follows the same trend as thi supply for a single product. Supply rises as prices rise. However, the long run is different In the long run. supply is not affected by price In the Jong run. production is limited by the factors of production In other words, what a country can supply de|4iids on the numlier of factories it has. the number of people working and the availability • >1 raw materials This is why the long run supply curve in figure 2 oil page <>A is a straight liiu.

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