The function of the aggregate supply and aggregate demand model is to give details on how real growth domestic product and the price level are determined and how they interact with each other, this is as according to Parkin et al (2013:632). As defined by Parkin et al (2013:636) the quantity of real growth domestic product demanded is the overall volume of final goods and services produced in South Africa that people, businesses, governments and foreigners plan to buy. The quantity of real growth domestic product supplied is essentially the overall volume of quantity of goods and services, valued in the constant base-year that a firm strategies to produce during a given period. However, this depends on the amount of labour employed, the amount of physical and human capital and the state of technology, this is as according to Parkin et al (2013:632). It is important to note that for economies that are expanding, there are three frames that may be analysed to evaluate what boots that particular economy in the different period spectrums. For the purpose of this essay we pay particular attention on the very short run, where prices cannot vary, and the short run where it is defined that prices can vary Parkin et al (2013:632). Therefore the aims of the essay is to illustrate and discuss how a fall in exports will affect economic performance in the period spectrums mentioned above, using the Keynesian Model. Discussion
As according to Mohor et al (2007:435) prices are to be fixed in the very short run. This is because it is a way in which the firms are to know whether to increase production. As soon as stock begins to load up, the firm needs to cut down on production, this is because in the very short run, price adjustment cannot be used to boost the real growth domestic product. When there is any influence on the aggregate planned expenditure other than price level changes, this results in both the aggregate expenditure curve and the...
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