AP Macro Economics Problem Set #3
The determinants of aggregate demand are as fallows: Consumer Spending, Investment, Government Spending and exports. Consumer Spending is how much a population in a certain economy can spend on goods. This can be affected by the wealth of the citizens, the wealthier the citizens the more they can buy increasing demand. Investment is when a firm or other entity put money into their service hoping to improve it. An example would be when a company buying a new factory to produce their good. Government spending is when the government spends money. For example the government spends money in the form of welfare to help unemployed workers. Net Exports are the total exports minus total imports. This can be seen in any foreign good. The determinants of aggregate supply are as fallows: Changes in inflation, changes in resource price, changes in actions of government, and changes in productivity. Changes in inflationary expectations are when peoples expectations are raised or lowered. For example, if an increase in AD leads people to expect higher prices in the future then this would decrease labor and resource cost and decrease aggregate supply. Change in resource price is when a resource becomes cheaper or more expensive. For example if there was an oil surplus there would a lower price on gasoline as a result of the higher supply. Changes in actions of government is government actions such as taxes that does not include government spending. An example would be taxes or government regulations. Change in productivity would be any factor affecting the production process. For example a change in technology would change the amount produced. Sticky wages and prices are wages and prices that are not susceptible to quick to change in relation to demand or supply. An example of a sticky price would be any product or job thats price or pay has stayed at a constant rate over time. Being president has a sticky...