aggregate demand. Aggregate supply

Aggregate demand (AD - aggregate demand) is the sum of all types of demand or the total demand for all final products and services produced in society.

In the structure of aggregate demand, there are:

Demand for consumer goods and services (C);
demand for investment goods (I);
demand for goods and services from the state (G);
net exports is the difference between exports and imports (X).

Thus, aggregate demand can be expressed by the formula:

AD = C + I + G + X.

The aggregate demand curve shows the quantity of goods and services that consumers are willing to purchase at each possible price level. The movement along the AD curve reflects the change in aggregate demand depending on the price dynamics. Demand at the macro level follows the same pattern as at the micro level: it will fall when prices rise and increase when prices fall.

This dependence follows from the equation of the quantity theory of money:

MV = PY and Y=MV/P, where P is the price level in the economy;
Y is the real volume of output for which demand is presented; M is the amount of money in circulation;
V is the velocity of money circulation.

It follows from this formula that the higher the price level P., the smaller (assuming a fixed M and the velocity of their circulation V) the quantity of goods and services demanded Y .

The inverse relationship between aggregate demand and the price level is related to:

The interest rate effect (Keynes effect) - as prices rise, the demand for money increases. With a constant money supply, the interest rate rises, and as a result, demand from economic agents using loans decreases, aggregate demand decreases;
the wealth effect (the Pigou effect) - rising prices reduce the real purchasing power of accumulated financial assets, make their owners poorer, resulting in a decrease in the volume of import purchases, consumption and aggregate demand;
the effect of import purchases - an increase in prices within the country at constant import prices shifts part of the demand for imported goods, resulting in a reduction in exports and a decrease in aggregate demand in the country.

Along with price factors, aggregate demand is influenced by non-price factors. Their action leads to a shift of the AD curve to the right or to the left.

Non-price factors of aggregate demand include:

The supply of money M and the velocity of their circulation V (which follows from the equation of the quantity theory of money);
factors affecting household consumer spending: consumer welfare, taxes, expectations;
factors affecting firms' investment spending: interest rates, concessional lending, subsidy opportunities;
public policy that determines government spending;
conditions in foreign markets affecting net exports: fluctuations in exchange rates, prices in the world market.

Changes in aggregate demand are reflected in Fig. 9.1. A shift of the line AD to the right reflects an increase in aggregate demand, and to the left a decrease.

Aggregate supply (AS - aggregate supply) - all final products (in value terms) produced (offered) in society.

The aggregate supply curve shows the dependence of the total supply on the general price level in the economy.

The nature of the AS curve is also affected by price and non-price factors. As with the AD curve, price factors change the volume of aggregate supply and cause movement along the AS curve. Non-price factors cause the curve to shift to the left or right. Non-price supply factors include changes in technology, resource prices and volumes, taxation of firms, and economic structure. Thus, an increase in energy prices will lead to an increase in costs and a decrease in supply (the AS curve shifts to the left). A high yield means an increase in aggregate supply (a curve shift to the right). An increase or decrease in taxes, respectively, causes a decrease or increase in aggregate supply.

The shape of the supply curve is interpreted differently in classical and Keynesian economic schools. In the classical model, the economy is considered in the long run. This is the period during which the nominal values ​​(prices, nominal, nominal interest rate) under the influence of market fluctuations change quite strongly, are flexible. Real values ​​(production output, employment rate, real interest rate) change slowly and are assumed to be constant. The economy functions at full capacity with full employment of the means of production and labor resources.

The aggregate supply curve AS looks like a vertical line, reflecting the fact that under these conditions it is impossible to achieve a further increase in output, even if this is stimulated by an increase in aggregate demand. Its growth in this case causes inflation, but not the growth of GNP or employment. The classical curve A S characterizes the natural (potential) volume of production (GNP), i.e. the level of GNP at the natural level or the highest level of GNP that can be created with the technologies, labor and natural resources available in society without increasing inflation rates.

The aggregate supply curve can move left and right, depending on the development of production potential, productivity, production technology, i.e. those factors that affect the movement of the natural level of GNP.

The Keynesian model considers the economy in the short run. This is such a period (lasting from one to three years) that is necessary to equalize prices for final products and. During this period, entrepreneurs can make a profit as a result of excess prices for final products while lagging behind prices for factors of production, primarily for labor. In the short run, nominal values ​​(prices, nominal wages, nominal interest rates) are regarded as rigid. Real values ​​(output volume, employment level) are both flexible. This model comes from an underemployed economy. Under such conditions, the aggregate supply curve AS is either horizontal or ascending. The horizontal segment of the straight line reflects the state of a deep recession in the economy, underutilization of production and labor resources. The expansion of production in such a situation is not accompanied by an increase in prices for resources and . The upward segment of the aggregate supply curve reflects a situation where the growth in national production is accompanied by some increase in prices. This may be due to the uneven development of individual industries, the use of less efficient resources to expand production, which increases the level of costs and prices for final products in the context of its growth.

Both classical and Keynesian concepts describe reproduction situations that are quite possible in reality. Therefore, the three forms of the supply curve are usually combined into one line, which has three segments: Keynesian (horizontal), intermediate (ascending) and classical (vertical). (Fig.9.2)

The intersection of the aggregate demand curves AD and aggregate supply AS gives the point of general economic equilibrium. The conditions for this equilibrium will be different depending on where the aggregate supply curve AS intersects with the aggregate demand curve AD.

The intersection of the AD curve and the AS curve in the short run means that the economy is in short run equilibrium, in which the price level for final products and real national product is set on the basis of the equality of aggregate demand and aggregate supply. (Fig.9.3) Equilibrium in this case is achieved as a result of constant fluctuations in supply and demand. If the demand AD exceeds the supply AS , then in order to achieve an equilibrium state, it is necessary either to raise prices, or to expand output, with unchanged production volumes. If the supply of AS exceeds the demand of AD, then either cut production or lower prices.

The state of the economy that occurs at the intersection of three curves: the aggregate demand curve (AD), the short run aggregate supply curve (AS) and the long run aggregate supply curve (LAS), is a long run equilibrium. On the chart 9.4. this is the point E 0 .

Long-run equilibrium is characterized by:

The prices of factors of production are equal to the prices of final products and services, as evidenced by the intersection at point E 0 of the short-run aggregate supply curve AS 1 and the long-run supply curve LAS.
The total planned expenditure is equal to the natural level of real output. This is evidenced by the intersection of the aggregate demand curve AD 1 and the long-run aggregate supply curve LAS.
Aggregate demand is equal to aggregate supply, which follows from the intersection at point E 0 of the aggregate demand curves AD 1 and the short-run aggregate supply curve AS 1.

Suppose that as a result of the action of some non-price factor (for example, an increase in the money supply from the Central Bank), there was an increase in aggregate demand, and the aggregate demand curve shifted from position AD 1 to position AD 2. This means that prices will be set at a higher level , but will be in a state of short-term equilibrium at the point E 1 . At this point, the real output of the product will exceed the natural (potential), prices will rise, and unemployment will be below the natural level. As a result, the expected level of prices for resources will increase, which will cause an increase in costs and a decrease in aggregate supply from AS 1 to AS 2, and, accordingly, a shift in the AS 1 curve to AS 2. At the intersection point E 2 of the AS 2 and AD 2 curves, equilibrium, but it will be short-term, since the prices of factors of production do not coincide with the prices of final products. Further growth in prices for factors of production will bring the economy to point E3. The state of the economy at this point is characterized by a decrease in the output of the product to the natural level and an increase in unemployment (also to its natural level). The economic system will return to its original state (long-term equilibrium), but at a higher price level.

The problem associated with the shape of the aggregate supply curve and the establishment is not only theoretical, but also of great practical importance. The question is whether the market system is self-regulating, or whether aggregate demand should be stimulated to achieve equilibrium.

It follows from the classical (neoclassical) model that, due to the flexibility of the nominal wage rate and the interest rate, the market mechanism automatically constantly directs the economy towards a state of general economic equilibrium and full employment. An imbalance (unemployment or a production crisis) is possible only as a temporary phenomenon associated with the deviation of prices from their equilibrium values. Shifts in the aggregate supply curve A S are possible only with a change in technology or the magnitude of the applied factors of production. In the absence of such changes, the AS curve in the long run is fixed at the level of the potential product, and fluctuations in aggregate demand are reflected only in the price level. Changes in the amount of money in circulation affect only the nominal parameters of the economy, without affecting their real values. It follows from this that there is no need to interfere with the operation of the economic mechanism.

In Keynesian theory, the main provisions of neoclassicism are criticized. In contrast to neoclassical theory, which considers an economy that corresponds to the conditions of perfect competition, Keynesians point to the presence of many imperfections in the market mechanism. This is the presence of monopolies in the economy, the uncertainty of the values ​​of economic parameters that determine the decisions of economic entities, the administrative regulation of prices, etc. Wages, prices, interest rates are not as flexible as neoclassical theory represents.

Keynes proceeded from the fact that the level of wages is fixed by labor legislation and labor contracts and therefore is invariable. Under these conditions, a decrease in aggregate demand will lead to a decrease in the volume of production and a reduction in the demand for labor, i.e. the rise in unemployment. (Figure 9.5.) Since wages do not change, there is no reduction in production costs and price reduction. The segment of the aggregate supply curve is horizontal at the price level Р 1 . (Fig. 9.6.) Point Q 1 in this figure shows the volume of production corresponding to full employment. After this point, the supply curve is vertical. This means that with an increase in aggregate demand, the volume of production cannot increase (due to the depletion of resources), but prices will increase. Within the limits of available resources (on the horizontal section of the AS curve), the economy can reach equilibrium at any point on this segment, but the volume of national production will be lower than at full employment. From this, Keynesians conclude that it is necessary for the state to maintain aggregate millet (and, therefore, production and employment) at a desirable level.

W - salary; L - employment;
Q 1 - the volume of production corresponding to full employment; L 1 - labor supply corresponding to full employment; P3 inflationary rise in prices with an increase in aggregate demand;
(L 2 - L 1) - unemployment;
Q 2 - the volume of production with reduced aggregate demand.

Growth in aggregate demand

Rejecting some of the basic neoclassical postulates, for example, the analysis of the market as a self-regulating mechanism, John. Keynes proved that the market can provide effective demand without government regulation of monetary and budgetary policy. state in this area aims to encourage private investment and growth in consumer spending to increase .

Rice. 6. Models of aggregate supply

In accordance with the Keynesian version, the AD-AS model looks different than the classical one (Fig. 6). Moreover, when analyzing the model, J. Keynes identified the situation of an inflationary gap and a situation of a recessionary gap. Inflation gap situation. With it, the growth of aggregate demand (shift to the right and upwards of the AD curve) leads in the short run to an increase in production above the potential level. The long-term consequence of an increase in aggregate demand will be an increase in prices while returning to potential output. The inflationary gap between potential and real equilibrium outputs is Y=Y-Y>0 Y- sustainable (potential) volume of real GDP production with available resources, Y- real equilibrium output. recessionary situation. A decrease in aggregate demand (a shift to the left of the AD curve) in the short run leads to a decrease in the level of real production compared to potential. The long-term consequence of the growth in demand in this case is not a decrease in prices while returning to potential output, but stagnation, a recession, since prices have one-way flexibility: they rise relatively easily, but fall extremely slowly. The recessionary gap between potential and real equilibrium outputs in this case is Y=Y-Y Aggregate demand model Aggregate demand - aggregate supply (AD - AS) model shows the relationship (like any model, other things being equal) between the price level (expressed , for example, through the GNP deflator) and the real national (domestic) product (gross or net), which is sold and bought.

Aggregate demand (AD) is the volume of goods and services produced in a given , which all consumers are willing to buy, depending on the price level. The aggregate demand curve - AD 1 has a descending form (Fig. 12-1), which means an inverse relationship between the price level and the volume of aggregate demand for national goods and services. Thus, if there is inflation in the economy, then it reduces the amount of aggregate demand for national goods and services. This dependence is similar to the law of demand. But the factors that explained the desires and capabilities of consumers in the market for a particular product do not explain the behavior of the AD curve.

First, it is impossible to achieve full satisfaction of needs in all goods and services that make up the national product: some will always be in dire need anyway. Second, on a macroeconomic scale, most consumers are at the same time suppliers of resources, and the increase in their spending as buyers due to rising prices simultaneously means a proportional increase in their income as sellers. The negative slope of AD is explained by several factors. On the one hand, inflation reduces the real value of those financial assets of households that have a fixed nominal value (cash, term deposits, bonds, bills, etc.) and induces to compensate for losses by spending less on purchases of goods and services: this is the wealth effect . Another factor that determines the shape of the AD curve, the interest rate effect, is associated with an increase in the lending rate during inflation (with the money supply unchanged), which reduces both private investment and consumer spending using credit funds. Finally, there is the net export effect: an increase in the price of national goods reduces the volume of foreign demand for them and at the same time increases the demand for imported goods. In the Russian economy, in conditions of extremely high inflation, a fading investment process, and the underdevelopment of reliable savings and lending instruments, the first two effects, apparently, hardly manifest themselves. In addition, inflationary expectations, especially at high rates of price growth, stimulate rush demand, which leads to an increase in current household consumption. Therefore, aggregate demand is relatively inelastic.

Change In reality, aggregate aggregate demand rarely remains stable for long. It is made up of the total demand for national goods and services from four large consumer groups in the macroeconomy: households, private firms, government agencies, and foreigners. Any significant change in the needs and capabilities of any of these groups will be reflected in aggregate demand, causing it to increase or decrease. Monetarist economists believe that the main reason for the instability of aggregate demand is an excess or shortage of the money supply in circulation.

The growth of aggregate demand looks on the chart as a shift of the AD curve to the right and up (from AD 1 to AD 2). This means that now all consumers, taken together, are ready to buy more of the national product at the same price level, or the same amount of national product at higher prices.

Accordingly, the decrease in aggregate demand looks on the chart as a shift of the AD curve to the left and down (from AD1 to AD3). The main difficulty in determining and forecasting aggregate demand is related to the extreme diversity of interests and intentions of numerous consumer groups that are under the simultaneous influence of many factors of different strength and nature, often acting in opposite directions. For example, an increase in taxes on personal and firm incomes will cause a reduction in consumer spending and private investment, which will push the AD curve down to the left; but the funds received from additional taxes will partly return to the population in the form of transfer payments and payments for resources, increasing consumption, partly will be spent by the state on the purchase of national goods and services - all this will push the AD curve upwards to the right. The final result in terms of aggregate demand is quite uncertain.

Level of aggregate demand

The aggregate demand curve deviates down and to the right, i.e. just like the demand curve for a single good. The reasons for this deviation are various. The former explanation has to do with income and substitution effects: when the price of an individual good falls, the consumer's (constant) money income enables him to purchase more of the good (income effect). Moreover, when the price falls, the consumer is willing to purchase more of the good because it becomes relatively cheaper than other goods (the substitution effect). But these explanations are not enough when we are dealing with aggregates.

The nature of the aggregate demand curve is determined primarily by three factors:

1) the effect of the interest rate;
2) the wealth effect, or real cash balances;
3) the effect of import purchases.

The interest rate effect suggests that the trajectory of the aggregate demand curve is determined by the impact of a changing price level on the interest rate, and hence on consumer spending and investment. When the price level rises, so do interest rates, and higher interest rates, in turn, reduce consumer spending and investment.

At high interest rates, businesses and households reduce a certain part of their spending, i.e. react quickly to changes in interest rates. A firm that expects to receive a 10% return on investment goods purchased will consider this purchase profitable if the interest rate is, for example, 7%. But the purchase will not bring and therefore will not take place if the interest rate increases, say, to 12%. Consumers will also choose not to buy houses or cars because of higher interest rates.

So:

1) an increase in the interest rate leads to a reduction in some expenses of enterprises and consumers;
2) a higher price level, by increasing the demand for money and raising the interest rate, causes a reduction in demand for the real volume of the national product.

The wealth effect, or real cash balance effect, suggests that at a higher price level, the real value, or purchasing power, of accumulated financial assets, in particular assets with a fixed monetary value, such as term accounts or bonds held by the public, will decrease. In this case, the population will actually become poorer, and therefore it can be expected that they will reduce their spending. Conversely, when the price level falls, the real value, or purchasing power, of wealth will increase and expenditures will increase.

The effect of import purchases leads to a decrease in aggregate demand for domestic goods and services with an increase in the price level. Conversely, a relative decrease in the price level tends to reduce imports and increase exports, and thereby increase net exports in aggregate demand.

Non-price factors of aggregate demand

Changes in the price level lead to the following changes in the real volume of national production: an increase in the price level, ceteris paribus, will lead to a decrease in the demand for real output, and vice versa, a decrease in the price level will cause an increase in output. However, if one or more "other conditions" change, then the entire aggregate demand curve shifts. These "other conditions" are called non-price factors of aggregate demand.

To understand what causes changes in national output, one must distinguish between changes in the quantity demanded of national product due to changes in the price level and changes in aggregate demand due to changes in one or more non-price determinants of aggregate demand.

Non-price factors of aggregate demand that shift the aggregate demand curve include:

Change in consumer spending:

A) consumer welfare
b) consumer expectations,
c) consumer debt,
d) taxes.

Changes in investment costs:

A) interest rates
b) expected returns on investment

Aggregate demand equilibrium

The intersection of aggregate demand and supply curves within the same plane makes it possible to observe the state of general macroeconomic equilibrium. Expressed in economic terms, macroeconomic equilibrium is the balance of the economy and its market mechanism, when the demand for factors, finished products, labor, securities, etc. approximately equals their supply from other economic entities, depending on whether who owns and uses them. Accordingly, the point of intersection of supply and demand, on the one hand, shows the equilibrium volume of output, and on the other hand, the equilibrium price level, which suits both buyers and sellers.

Macroeconomic balance can be disturbed, changed. For example, the economy was initially in a state close to full employment. Suppose that the supply of money supply in the country has increased, which makes economic entities more solvent. As a result, the demand for various goods, services and other benefits begins to grow. The aggregate demand curve moves along the supply curve, a short-term equilibrium is established. The increase in demand stimulates the development of production and its volumes. Initially, the price of output does not change, but as marginal cost rises, the producer decides to set a higher price level. Consumer demand is declining, which characterizes the return of the economy to the previous level of output, only at a higher price level.

Having considered the general macroeconomic equilibrium, it is necessary to turn to the equilibrium that can arise directly in the commodity market, that is, the market for goods and services that consumers purchase to satisfy their needs. Two main models are also presented here: classical and Keynesian.

The classics believe that the situation when the total expenditures of all economic entities (GDP = consumer spending + investment spending by firms + government spending + spending abroad on the purchase of goods of our production - our expenditure on the purchase of imported products) may not be enough to purchase all goods produced in conditions of full employment of resources, is simply impossible. In other words, equilibrium is always established. Moreover, even assuming that the equilibrium can be disturbed, then in this case wages, price levels and interest rates will start to move and begin to rise. This will allow, with declining demand, to reduce the supply, that is, to ensure a production decline.

Keynesians, on the contrary, believe that there is no mechanism for self-regulation of equilibrium. At the same time, the equilibrium itself does not coincide with the full employment of resources, i.e., the equilibrium volume of production is always less than the potential one. This is mainly due to the failure to fulfill the equality of savings and investments, since they are carried out by different economic entities with different goals and motives. For example, the motives of households to save more lie in the following: buying more expensive goods, providing for themselves in old age and children in the future, and insurance against unforeseen circumstances, both economic and other potential dangers. When making a decision to invest, firms are primarily motivated by the desire to get the maximum possible profit and a relatively low real interest rate.

Non-price factors of aggregate demand

Expectation. This factor is generated by the usual psychology in the behavior of economic entities, according to which their current decisions must necessarily take into account the changes in the economic situation expected in the future. Expectations can influence the current behavior of both households and businesses.

Changes in consumer spending depend on the projections that households make. If households believe that their real income will increase in the future, they will be willing to spend more of their current income. As a result, consumption spending rises and the aggregate demand curve shifts to the left. A similar effect on current aggregate demand is the massive expectation of a new wave of inflation, since in this case, households will increase current purchases of consumer goods, outpacing price increases.

Changes in investment spending depend on the expectations of enterprises. Thus, the appearance of optimistic forecasts regarding the receipt of high returns on invested capital may contribute to an increase in demand for investment goods, which will cause the aggregate demand curve to shift to the right. If the prospects for high returns on future investment programs are unconvincing, then investment spending will decrease, causing aggregate demand to contract and move its curve to the left.

Changes in the economic policy of the state. Considering the model of economic circulation, we noted that the government can also influence the amount of total spending. Thus, by increasing government purchases, which are one of the components of total spending, the government increases aggregate demand and shifts the curve to the right. By raising the income tax on citizens, the government reduces the tax-free income of households, causes a decrease in consumer spending and aggregate demand, which shifts its curve to the left. By raising corporate income taxes, the government will lower the expected rate of return on investment. This will reduce the investment component of aggregate demand, which will shift its curve to the left.

An important element of the economic policy of the state is the monetary policy of the National Bank, changes in which also affect aggregate demand. Thus, the National Bank's measures to increase the money supply in the economy increase aggregate demand and shift its curve to the right. Measures taken by the National Bank to reduce the money supply reduce aggregate demand and shift its curve to the left.

Changes in the global economy. Since aggregate demand is affected by net exports, this means that changes in the international trade environment also affect aggregate demand. These changes can occur in several directions.

The first is the growth of economic activity in our trading partners. In this case, the GDP of trading partners grows, which causes an increase in their demand for our goods and an increase in our exports. This increases aggregate demand and shifts its curve to the right.

The other is a change in the price level of our trading partners. If their domestic prices rise, then our goods become relatively cheaper and more attractive to them, which increases our exports and aggregate demand, and its curve shifts to the right. Similarly, changes in the exchange rate of our trading partners, which may be caused by changes in the situation on the currency exchanges, affect aggregate demand.

The third is changes in the trade policy of our partners. If in relations with our country they shift the emphasis in trade policy towards strengthening the role of protectionist mechanisms, then our exports are falling. If preference is given to free trade mechanisms, then our exports increase. This affects net exports as a component of aggregate demand, which shifts its curve in the corresponding direction.

Shift in the aggregate demand curve

When analyzing aggregate demand and aggregate supply, it is usually assumed that shifts in the aggregate demand and aggregate supply curves do not affect the natural level of output (which increases at a constant rate). In this case, fluctuations in aggregate output around the level Y in the figure characterize changes in aggregate output in the short run (business cycle). However, some economists dispute the assumption that aggregate demand and aggregate supply shocks do not affect Yn.

A group of economists led by Edward Prescott at the University of Minnesota developed a theory of macroeconomic fluctuations called the real business cycle theory. According to this theory, real supply shocks change the natural level of output (Y). In this theory, exogenous (shock-like) changes in preferences (e.g., workers' willingness to work) and technology (productivity) are considered the main drivers of cyclical fluctuations in the short run, since they are the ones that cause significant fluctuations in Y in the short run. At the same time, shifts in the aggregate demand curve, caused, for example, by monetary policy measures, have little effect on fluctuations in the volume of aggregate output. According to the theory of the real business cycle, in most cases, cyclical fluctuations occur as a result of fluctuations in the natural level of output, so there is no particular need to pursue an active economic policy and eliminate high unemployment. Real business cycle theory is highly controversial and is currently the subject of intense research.

Another group of economists disagree that demand shocks do not affect the natural rate of output Y. They argue that the natural rate of unemployment and output are subject to hysteresis, that is, deviation from the level of full employment as a result of high unemployment in the past. When a fall in aggregate demand that shifts the AD curve to the left results in an increase in unemployment, there is an increase in the natural rate of unemployment above full employment. This situation arises if the unemployed are discouraged from finding work or if they are reluctant to hire workers who have been unemployed for a long time, considering this fact as evidence that such workers are not suitable for them. As a result, the natural rate of unemployment rises, causing Yn to fall below full employment. Further, the mechanism of self-regulation of the economy comes into play, which can return it only to the natural level of unemployment and output, but not to the level of full employment. Now, the only way to achieve a reduction in the natural rate of unemployment (and an increase in Y) to the level of full employment is through the implementation of a stimulating economic policy that shifts the aggregate demand curve to the right and increases the volume of aggregate output. Thus, proponents of the concept of hysteresis are more inclined to promote expansionary policies as a means of quickly restoring full employment in the economy.

Aggregate demand and its factors

The aggregate demand curve is described by the same equation as GDP:

AD = C + I + G + Xn,
where C is the demand of households and individuals;
I - investment demand of firms;
G - demand of the state;
Xn - foreign demand;

Graphically, the aggregate demand curve looks similar to a regular demand curve, only the abscissa is now GDP (Y), and the ordinate is the general price level in the country (P). It is also convex with respect to the origin of the coordinate system and is characterized by an inverse dependence of the quantity demanded on the mechanism . If prices decrease, each of the subjects seeks to satisfy their needs to the greatest extent, to acquire the maximum desired amount of goods, goods, services. Thus, the demand curve shows how many economic goods consumers are willing and willing to purchase at the prevailing price level in the economy.

There are two large groups of factors that, one way or another, have a huge impact on consumer aggregate demand.

Price factors, i.e. those that are inextricably linked with the dynamics of pricing.

1. The price of market goods and services is the starting point for making the buyer's choice. Any consumer always focuses on a system of relative prices and, with the same quality, will choose a cheaper product, and with the same price, a better one.
2. Wealth effect, or Pigou effect. With an increase in the general price level, inflation inevitably occurs, the interest rate falls in these conditions, which reduces the amount of savings and assets. So, it turns out that with an increase in prices, the assets of the population decrease by a certain amount, and, as a result, aggregate demand also falls. Otherwise, when prices fall, aggregate demand rises. In other words, with a constant income and declining cost of market goods, the purchasing power of the subject grows: he can buy a larger set of goods and services for the same amount of money, and accordingly feels somewhat richer.
3. Interest rate effect, or Keynes effect. The equality of savings and investment implies the coincidence of the desire of households to save with the desire of firms to make long-term investments. With an increase in prices and interest rates, investing in bank deposits turns out to be the most effective, and the population decides to keep money. At the same time, it is unprofitable for firms to invest at a high interest rate, because one way or another they take some start-up capital on credit. It turns out that savings are growing, and investments are declining. In general, an increase in the interest rate leads not only to an increase in savings, but also to a decrease in consumption by the same amount, which together reduces national income and aggregate demand. When the interest rate falls, households spend more and firms invest more, so GDP rises in line with aggregate demand.
4. The effect of import purchases, or the Mundell-Fleming effect. If prices within a country begin to rise, the population partially stops consuming domestically produced products and gives preference to imported goods. This, in turn, causes a decrease in the value of net exports, the share of consumption and aggregate demand. Otherwise, when prices fall, the value of imported goods in the overall structure of the market supply decreases, the consumption of domestic goods and services increases, and the demand for them increases.
non-price factors. These typically include the availability and price of substitutes, economic and inflationary expectations of consumers, and fashion and taste preferences. Within the framework of macroeconomics, the main non-price factors are the amount of money supply, or the money supply in the economy, and the speed of its circulation. The more money is in the hands of the population, in circulation, the higher the purchasing power, as a result of which the prices of goods and services begin to rise, which causes a decrease in overall demand.

The value of aggregate demand

Aggregate demand is subject to the general patterns of demand formation, which were mentioned above, and therefore it can be graphically depicted as follows (Fig. 2).

Rice. 2. Country Aggregate Demand Curve

The aggregate demand curve shows that with an increase in the general price level, the aggregate demand (the total amount of purchases of goods and services of all kinds in all markets of a given country) decreases in the same way as in the markets for individual ordinary (normal) goods.

But we know that in the case of an increase in the prices of individual goods, the demand of buyers simply switches to analogous goods, substitute goods, or other goods or services. At first glance, it is not clear how the total demand for all goods and services can decrease, since there seems to be no switching of buyers' expenses here.

Of course, the income does not disappear anywhere. The general patterns of buyers' behavior are not violated in the model of aggregate demand. They just show up in a different way.

If the general price level in the country increases significantly (for example, under the influence of high inflation), then buyers will begin to use part of their income for other purposes.

Instead of acquiring the same amount of goods and services produced by the national economy, they may choose to spend some of their money on:

1) creation of savings in the form of cash and deposits in banks and other financial institutions;
2) the purchase of goods and services in the future (i.e., they will begin to save money for specific purchases, and not in general, as in the first option);
3) the purchase of goods and services produced in other countries.
The patterns of changes in aggregate demand determine the entire life of the country, and therefore they are studied

Aggregate demand function

Let us first carry out a graphical analysis of this dependence. The initial joint equilibrium in the markets for goods, money and capital is represented by the point E0. The equilibrium volume of aggregate demand in the goods market has been established at a certain initial price level P0. Let's mark it on the y-axis of the lower part. The point A formed at the intersection of the values ​​y0 and P0 is one of the points of the graph yD(P).

Let the price level rise to P1. Then, for a given nominal amount of money, their real value will decrease, as a result of which the LM curve will shift to the left: LM0 LM1. Joint equilibrium in the goods and financial markets will become possible only with the values ​​of y1, i1. Therefore, at the price level P1, the effective demand will be equal to y1. Therefore point B also lies on the graph yD(P).

If the price level falls to P2, the real amount of money in circulation will increase and a shift LM0 LM2 will follow. The value of effective demand will increase to y2. The coordinates P2, y2 in the lower part correspond to point C. Connecting all the points of the aggregate demand function found in this way, we obtain its graph yD(P). When household consumption depends not only on real income, but also on real cash balances as part of the property, then when the price level rises, consumer demand decreases at any rate of interest due to a reduction in real cash. Therefore, in the upper part, simultaneously with the shift LM0 LM1, there will be a shift IS IS", and as a result, in the lower part, instead of point B, we will get point B".

Accordingly, when the price level decreases simultaneously with the shift LM0 LM2, there is a shift IS IS "", and then on the graph of aggregate demand there will be not point C, but point C"". Consequently, in the presence of the effect of real cash balances, aggregate demand becomes more elastic with respect to the price level (the yD(P) graph becomes flatter).

Aggregate demand theory

The "General Theory" (we will call it abbreviated, as is usually done) is generally considered to be a very unintelligible and poorly constructed work. Since its publication, countless articles and symposiums have been devoted to the topic "What is the meaning of the General Theory". This indicates that everyone considered the book extremely important, but no one was completely sure what this importance was. Books and Articles about what Keynes really meant continue to appear today, half a century after the publication of The General Theory, but everyone agrees on at least this: Keynes believed, first, that the traditional approach of economists to the problem of recessions, in fact, ignored this problem itself and, secondly, that the economies of modern industrialized countries, such as Great Britain or the United States, do not at all tend to automatically move towards full employment.

Order and disorder in economic systems

The theory that Keynes criticized was the theory of ordered coordination. But if recessions occur as a result of breakdowns in the coordinating mechanism, then it is quite clear that we do not have to wait for their satisfactory explanation and means of combating them from a theory that assumes that the mechanism works normally.

Traditional economic theory has viewed recessions as periods of temporary excess. Indeed, during a recession, workers cannot find work and goods remain unsold. The supply of labor and manufactured goods is higher than the demand for them. Any economist will tell you that to eliminate the surplus, you have to lower the price. If workers cannot find work, it means they want wages that exceed their value to the employer. With lower wages, everyone who wants to work could find a job. If manufacturers cannot sell all their products, then they are asking too high a price; at a sufficiently low price, all products that bring at least some benefit can be sold. Such is the nature of supply and demand. A recession is simply a temporary deviation from equilibrium. It will end as soon as prices and wages reach their equilibrium, "clearing the market" level.

But how long will this process take? Instantaneously, it takes place only on the charts of economists. In reality, the search for equilibrium prices can take weeks, months, or even longer. Meanwhile, life does not stand still. The unemployed, not receiving income, reduce their spending, which further reduces demand. Manufacturers, overstocked with products no one wants to buy, are cutting back on production, laying off even more workers, and reducing demand for raw materials and other commodities needed for production. Thus, before prices fall enough to eliminate the surplus, an excess supply of labor and goods produced may well set off a knock-on effect of lower incomes and lower demand. In this case, in order to close the increased gap between supply and demand, prices would have to fall even lower. Don't we see this cumulative process in recessions: a fall in production, a fall in income, a further fall in production, and a further fall in income?

The timeless equilibrium approach inherent in the traditional economic theory in which Keynes was brought up made it impossible to explore this groping search for a new equilibrium. Within its framework, it was assumed that if the old equilibrium was disturbed, there would be an instantaneous jump to a new equilibrium. But if the causes of recessions occur precisely when the economy is out of equilibrium, then conventional theory is indeed ignoring the whole problem.

In addition, Keynes vigorously emphasized the role of expectations in economic decision making. The importance of this role is explained by the fact that decisions are made under conditions of uncertainty, when there is a high probability of making mistakes, when it takes time to adjust to unexpected events, in short, when the economic system is in disorder. All this had no place in the timeless, orderly, error-free world of traditional equilibrium analysis. In The General Theory, Keynes tried to explain economic downturns as the consequences of uncertainty and the duration of adjustment. This prompted him to focus his attention on the movement of aggregate demand.

The concept of aggregate demand

Aggregate demand is a model that is a graph in the form of a curve illustrating the change in the total real level of purchases planned by all consumers depending on the change in the price level. Ceteris paribus, the lower the price level, the greater the total volume of goods willing to purchase.

The aggregate demand curve shows how much GDP is willing to buy at a given price level. Along the aggregate demand curve, the money supply is constant; its change will cause a shift in the aggregate demand curve.

In the structure of aggregate demand, we can distinguish:

1) demand for consumer goods and services,
2) demand for investment goods,
3) demand for goods and services from the state,
4) demand for our exports from foreigners.

Factors affecting aggregate demand

The effect of the interest rate is that when prices rise, buyers of goods and services need more money to pay for agreements. Consequently, the demand for money grows, which, with a constant money supply, causes an increase in their price, i.e. interest rate. As a result, aggregate demand decreases due to the demand for those goods for the purchase of which you need to borrow money. This applies primarily to investment goods, as well as expensive consumer goods, which include mainly durable goods (cars, apartments, televisions, etc.).

The wealth effect is expressed in the fact that with rising prices, the real value, that is, the purchasing power, of the accumulated financial assets with a fixed income (bonds, term deposits, etc.) that are held by the population decreases. In this case, the owners of financial assets become really poorer, which reduces their demand, and, conversely, in the face of falling prices, the real value of financial assets increases, which increases the demand from their owners.

The net export effect reflects the impact of the external sector of the economy on aggregate demand and GDP. It manifests itself when the prices of domestic goods rise or fall than the prices of foreign goods. If domestic prices rise relative to prices abroad, then buyers will begin to prefer imported goods, which will cause an increase in imports. At the same time, foreigners will begin to buy less domestic goods, which will cause a decrease in exports. Therefore, under other constant conditions, an increase in prices within the country causes an increase in imports and a decrease in exports. As a result, net exports as part of aggregate demand are declining.

The factors discussed above are the price factors of aggregate demand, which indirectly realize the inverse dependence of aggregate demand on price. Their impact on aggregate demand is reproduced on a graph by the movement of the economy along a fixed aggregate demand curve.

For macroeconomic analysis, the slope of the aggregate demand curve is of great importance. It depends on how significantly price factors affect total costs. Thus, purchases of goods and services through loans and income from financial assets occupy an insignificant part in total expenditures.

Changes in net exports under the influence of prices also cannot have a significant impact on the dynamics of aggregate spending. In this regard, it would be appropriate to assume that

E) Change in the money supply.

117. Ceteris paribus, an increase in aggregate demand at full employment of resources leads to:

A) demand-pull inflation.

C) a decrease in the real interest rate.

C) To excess of export over import.

D) To an increase in the real interest rate.

E) To the growth of private investment.

118. An intermediate segment on the aggregate supply curve:

A) Has a positive slope.

B) Has a negative slope.

C) Represented by a horizontal line.

D) Represented by a vertical line.

E) Represented as a bisector.

119. An increase in aggregate spending in the Keynesian model will lead to a shift in the aggregate demand curve:

A) to the left by the amount of reduction in total costs, multiplied by the value of the multiplier

C) to the right by the amount of growth in total costs, multiplied by the value of the multiplier

C) to the left by the amount of growth in total costs, multiplied by the value of the multiplier

D) to the right by the amount of reduction in total costs, multiplied by the value of the multiplier

E) there are no correct answers

120. The multiple increase in NNP due to a slight increase in investment costs is caused by:

A) the multiplier effect

B) the paradox of thrift

C) A. Smith effect

D) technical revolution

E) all answers are correct

121. A recessionary gap is:

C) the amount of total costs

D) equilibrium volume of NNP

E) the amount of savings

122. Which of the listed concepts of the classical macroeconomic theory was criticized by D. Keynes?

A) the principle of state intervention

C) the principle of equality of savings and investments

C) the principle of state non-intervention

D) the principle of inequality of savings and investments

E) all answers are correct

123. The inflationary gap is:

A) the amount by which total spending is less than the level of NNP at full employment

C) the amount by which total spending exceeds the level of NNP at full employment

C) the amount of total costs

D) equilibrium volume of NNP

E) the amount of savings

124. If the volume of aggregate demand increases the level of GNP achieved at full employment, then this means that in the economy:

A) there is a recessionary gap

B) there is an inflationary gap

C) there will be an increase in production costs

D) there will be a reduction in production costs

E) partial equilibrium reached

125. If the volume of equilibrium GNP is greater than its potential level, then:

A) the price level will rise

B) the price level will fall

C) the price level will not change

D) there will be an increase in production costs

E) there will be a decrease in production costs

126. The aggregate demand curve expresses the relationship between:

E) there is no correct answer

127. When the position of the economy corresponds to the Keynesian segment of the curve

aggregate supply, an increase in aggregate demand will:

A) to reduce the volume of GDP in real terms, but will not affect the price level

C) to increase the volume of GDP in real terms, but will not affect the price level

C) to a decrease in the volume of GDP in real terms and to a decrease in the price level

D) to an increase in the volume of GDP in real terms and to an increase in the price level

E) to an increase in the volume of GDP in real terms and to a decrease in the price level

128. The aggregate supply curve expresses the relationship between:

A) the price level and total expenditure on the purchase of goods and services

C) the price level and the volume of GDP produced in real terms

C) the price level and the total cost of producing goods and services

D) the price level and the level of disposable income

E) there is no correct answer

129. If the state tightens requirements for the preservation of the environment, this causes:

A) a decrease in production costs per unit of output and a shift in the aggregate supply curve to the left

B) an increase in production costs per unit of output and a shift in the aggregate supply curve to the left

C) a decrease in production costs per unit of output and a shift in the aggregate supply curve to the right

D) an increase in production costs per unit of output and a shift in the aggregate supply curve to the right

E) there is no correct answer

4.3 Production and the labor market

130. To study the short-term period in the economy, an assumption is made about:

A) Price inflexibility;

B) Rising fixed costs;

C) Flexible investment rate;

D) Change in factors of production;

E) Constant economies of scale growth.

131. In the long run, an assumption is made about:

A) Price and wage flexibility;

B) the constancy of all factors of production;

C) Rigidity of the investment rate;

D) Change only the variable factor;

E) Decreasing economies of scale of growth.

132. The firm will hire an additional worker for the time being (w/P is the real wage; MP L is the marginal product of labor).

133. The production function in general terms is represented as:

A) Y = F (K, L);

B) Y = F(K) - F(L);

D) Y = F (K, L) - F (P);

134. The total income is equal to:

A) The amount of tenge received by producers as profit;

C) The total amount of tenge earned by workers;

C) the total product of the economy;

D) the total rent collected by the owners of capital;

E) Total savings.

135. A competitive firm accepts:

A) Prices for their products and factors of production as given;

C) given prices for products of production, but not for factors of production;

C) Set prices for factors of production, but not for their output;

D) Not given prices for manufactured products, nor for factors of production;

E) The decision is independent of market conditions.

136. The production function has the property of constant returns to scale:

A) if capital and labor are increased by 10%, then output will decrease by 10%;

C) if capital and labor are increased by 5%, then output will increase by 10%;

C) if you increase capital and labor by 10%, then output will also increase by 10%; D) if capital is increased by Z1 and labor by Z2, then output will increase by Z3;

E) if K is increased by 10%, and L by 5%, then output will increase by 7.5%.

137. What characterizes the marginal product of capital:

A) how much output will increase when using an additional unit of capital;

B) how much output will decrease when using an additional unit of capital;

C) technology level;

D) the rate of replacement of capital by labor;

E) the level of growth in the value of fixed capital.

138. According to what law, when an additional unit of capital is involved, the return on its use decreases.

A) the law of marginal diminishing returns;

B) Okun's law;

C) the law of demand;

D) diminishing effect of the scale of growth;

E) the law of rational expectations.

139. What factor does not affect the growth of national income?

A) increase in labor productivity.

B) an increase in the working day in the sphere of material production.

C) growth in the number of employees in the public sector.

D) increasing the intensity of labor.

E) an increase in the number of hired workers in the sphere of material production.

140. In the long run, the level of output in the economy is determined by:

A) The preferences of the population.

B) The amount of capital and labor, as well as the level of technology used.

C) the level of the interest rate.

D) the price level.

E) The money supply, the level of government spending and taxes.

141. Production function Y = F(K, L) has constant returns to scale if:

142. The Keynesian model considers:

A) The price level.

B) The functioning of the economy in relatively short periods of time.

C) salary.

D) production costs.

E) product release.

143. If the production function has increasing returns to scale, then there is:

A) mixed growth.

B) uncertainty.

C) decline in production.

D) extensive growth.

E) intensive growth.

144. The capital-labor ratio of labor is:

A) Capital produced over a long period of time.

B) The amount of capital per employee.

C) The ratio of the number of employees to the monetary value of capital.

D) The number of shares held by employees.

E) Capital produced during the year.

145. Equilibrium is established in the labor market when:

A) The magnitude of the demand for labor is equal to the number of people employed in the economy.

B) The supply of labor is equal to the number of workers.

C) The marginal product of labor is equal to the demand price of labor.

D) The marginal product of labor is equal to the supply price of labor;

E) The monetary value of marginal product is equal to the nominal wage rate.

146. According to the classical model, when the labor market is in equilibrium, then:

A) There is full employment.

B) Some people who want to work for real wages cannot find a job.

C) Jobs are created because firms cannot hire the required number of workers.

D) Potential GNP is higher than actual.

E) Taxes allow the labor market to achieve an efficient distribution of labor.

4.4 The market for goods

147. What taxes are indirect:

A) excise taxes, value added tax

B) personal income tax

C) property tax

TEST ECONOMY (DE - MACRO)

Topic: SNA and macroeconomic indicators

1. Provided that personal consumption expenditures are reduced by 30 den. units, government spending increased by 25 den. units, gross investment increased by 15 den. units, the volume of imports increased by 10 den. units, and the volume of exports decreased by 5 den. units GDP...

will be reduced by 5 den. units

will increase by 15 den. units

will increase by 5 den. units

will be reduced by 15 den. units

Solution:

GDP is one of the main macroeconomic indicators that evaluate the results of economic activity. When calculating GDP by expenditures, expenditures on final consumption of goods and services by households, the state are summed up; gross investment and net exports. An increase in the volume of each element leads to an increase in GDP. It should be noted that the “net export” indicator is equal to the difference between exports and imports, so an increase in exports leads to an increase in GDP, and an increase in imports leads to a decrease in GDP.

The total change in GDP will be: den. units

2. Personal disposable income will be _____ den. units provided that the GDP is 9300 den. units, depreciation deductions 800 den. units, transfer payments 750 den. units, indirect taxes 480 den. units, individual taxes 640 den.un., social security contributions 700 den. units

3. Personal disposable income, provided that the GDP is 10,000 den. units, depreciation deductions 700 den. units, transfer payments 1000 den. units, indirect taxes 500 den. units, individual taxes 1400 den.un., social security contributions 400 den. units, will be _____ den. units

Solution:

Course of economic theory: General foundations of economic theory. Microeconomics. Macroeconomics. Fundamentals of the national economy: textbook. allowance for university students / hands. ed. team and scientific ed. A. V. Sidorovich; Moscow State University M. V. Lomonosov. - M .: Business and Service, 2007. - S. 322-323.

4. The following data on the elements of GNI are known: wages of employees 2625 billion den. units, gross profit 3600 billion den. units, net indirect taxes 1275 billion den. units, net exports 1125 billion den. units, the balance of income from abroad -300 billion den. units This means that GNI amounted to _____ billion den. units

Solution:

GNI can be determined from these data using the income stream method: billion den. units

5. Personal disposable income will be _____ den. units provided that the GDP is 9300 den. units, depreciation deductions 800 den. units, transfer payments 750 den. units, indirect taxes 480 den. units, individual taxes 640 den.un., social security contributions 700 den. units

Solution:

Personal disposable income is calculated by subtracting depreciation, indirect taxes, individual taxes, social security contributions, income taxes, retained earnings from GDP and adding transfer payments: den. units

Course of economic theory: General foundations of economic theory. Microeconomics. Macroeconomics. Fundamentals of the national economy: textbook. allowance for university students / hands. ed. team and scientific ed. A. V. Sidorovich. - M .: Business and Service, 2007. - S. 322-323.

6. The following data on the elements of GDP are known: wages of employees 3,000 billion den. units, government spending on the purchase of goods and services 1450 billion den. units, gross private investment 1350 billion den. units, net indirect taxes 1300 billion den. units, gross profit 3150 billion den. units, consumer spending of households 3200 billion den. units, export 2200 billion den. units, imports 750 billion den. units This means that GDP, calculated using the expenditure stream method, amounted to _____ billion denier. units

Solution:

There are two ways to determine GDP from these data: 1) by the flow of expenses, billion den. units 2) by income stream billion den. units

7. Provided that the GDP is equal to 9000 den. units, depreciation deductions 1350 den. units, transfer payments 750 den. units, net exports 1050 den. units, consumer spending 3200 den. unit, net gross product (GDP) will be ____ den. units

8. If in 2009 household consumption spending was €500 billion, gross private domestic investment €250 billion, government purchases of goods €200 billion, indirect taxes €220 billion, net exports €60 billion, then nominal GDP is _________ billion euros.

The model "aggregate demand - aggregate supply" ("AD - AS") shows the relationship (like any model - ceteris paribus) between the price level (expressed, for example, through the GNP deflator) and the real national (domestic) product (gross or net ), which is bought and sold.

aggregate demand. Aggregate demand (AD) is the amount of goods and services produced in a given national economy that all consumers are willing to buy, depending on the price level. The aggregate demand curve - AD 1 has a descending form (Fig. 12-1), which means an inverse relationship between the price level and the volume of aggregate demand for national goods and services. Thus, if there is inflation in the economy, then it reduces the amount of aggregate demand for national goods and services. This dependence is similar to the law of demand. But the factors that explained the desires and capabilities of consumers in the market for a particular product do not explain the behavior of the AD curve. .

Rice. 12-1. Aggregate demand and its change

First, it is impossible to achieve full satisfaction of needs in all goods and services that make up the national product: some will always be in dire need anyway. Second, on a macroeconomic scale, most consumers are at the same time suppliers of resources, and the increase in their spending as buyers due to rising prices simultaneously means a proportional increase in their income as sellers. The negative slope of AO is explained by several factors. On the one hand, inflation reduces the real value of those financial assets that have a fixed nominal value (cash, term deposits, bonds, bills, etc.) and induces to compensate for losses by spending less on purchases, goods and services: this is the wealth effect . Another factor that determines the shape of the AO curve, the interest rate effect, is associated with an increase in the lending rate during inflation (with the money supply unchanged), which reduces both private investment and consumer spending using credit funds. Finally, there is the net export effect: an increase in the price of national goods reduces the volume of foreign demand for them and at the same time increases the demand for imported goods.

In the Russian economy, in conditions of extremely high inflation, a fading investment process, and the underdevelopment of reliable savings and lending instruments, the first two effects, apparently, hardly manifest themselves. In addition, inflationary expectations, especially at high rates of price growth, stimulate rush demand, which leads to an increase in current household consumption. Therefore, aggregate demand is relatively inelastic.

Change in aggregate demand. In reality, aggregate demand rarely stays stable for long. It consists of the total demand for national goods and services from four large groups of consumers: the population, private firms, government agencies and foreigners. Any significant change in the needs and capabilities of any of these groups will be reflected in aggregate demand, causing it to increase or decrease. Monetarist economists believe that the main reason for the instability of aggregate demand is an excess or shortage of the money supply in circulation.

The growth of aggregate demand looks on the chart as a shift of the AD curve to the right and up (from AD 1 to AD 2). This means that now all consumers, taken together, are ready to buy more of the national product at the same price level, or the same amount of national product at higher prices.

Figure 12-1 shows that an increase in aggregate demand can be accompanied by a reduction in real aggregate spending with a very large increase in prices (movement from point a to point b), and a decrease in prices - with a very large increase in aggregate demand (movement from point a to point b). point c). The only thing that can not be observed in this case is a simultaneous reduction in real costs and lower prices.

Accordingly, the decrease in aggregate demand looks on the graph as a shift of the AD curve to the left and down (from AD 1 to AD 3). The main difficulty in determining and forecasting aggregate demand is related to the extreme diversity of interests and intentions of numerous consumer groups that are under the simultaneous influence of many factors of different strength and nature, often acting in opposite directions. For example, an increase in taxes on personal and firm incomes will cause a reduction in consumer spending and private investment, which will push the AD curve down to the left; but the funds received from additional taxes will partly return to the population in the form of transfer payments and payments for resources, increasing consumption, partly will be spent by the state on the purchase of national goods and services - all this will push the AD curve upwards to the right. The final result in terms of aggregate demand is rather uncertain.

Growth in the level of aggregate demand. Aggregate offer. Consider an economy in a deep, protracted depression, with stable prices and mass unemployment. If aggregate demand begins to grow in such an economy (for example, due to government orders), firms, sensing this, will increase production volumes by hiring more workers, buying more raw materials and fuel, increasing the degree of production capacity utilization, etc. Will prices rise as a result? Only in the case of an increase in average costs. But given the same technology, the only reason for this could be a rise in resource prices (assume that only a negligible fraction of the resources are purchased from abroad). The growth in production is accompanied by an increase in demand for resources, but this will not cause their rise in price: their excess is too great, there are too many idle resources. So, there is an increase in the production and sale of the national product without a noticeable increase in the price level (Fig. 12-2).

With a further increase in aggregate demand, as the economy approaches full employment, prices for many resources begin to rise. This is due, firstly, to the fact that various resources are far from being completely interchangeable and are used in different industries, besides, the demand for the products of different industries is growing at different rates, so the state of full employment, exhausted production possibilities in a number of industries is reached earlier, than in the economy as a whole. Secondly, the resources have different quality (which determines their consumption per unit of output with the same technology), and the best quality resources are used in the first place. Thirdly, as the load on the capacity of the enterprise increases, the law of diminishing returns of variable resources begins to operate. As a result, average costs and prices for many goods and services will rise - inflation will begin and the mechanisms of its self-reproduction will turn on. So, further growth in aggregate demand will be accompanied by an increase in the national product with some, as a rule, moderate inflation (Fig. 12-3) - up to full employment. If the growth of aggregate demand continues at full employment of resources, the economy will be unable to produce more goods and services, and all the energy of the growing demand will be spent on raising the inflation rate (Figure 12-4).

Rice. 12-4. Aggregate supply curve

The trajectory that the point of macroeconomic equilibrium describes following the growing aggregate demand from a position of deep depression to a position of full employment (Figure 12-4) is called the aggregate supply curve. It consists of three segments:

1) horizontal (plot ab), corresponding to an economy in a deep crisis or depression (it is also called Keynesian, after the English economist J.M. Keynes, who discovered this phenomenon);

2) vertical (section cd), corresponding to full employment (also called classical - according to the economic school, whose followers claim that the entire AS curve in a normal economy consists of this one segment);

3) intermediate (section bс), connecting the other two.

Reducing aggregate demand. Ratchet effect. Let us now see how the equilibrium will shift with a reduction in aggregate demand.

Rice. 12-5. Ratchet effect

J. Keynes showed that prices behave very differently under pressure on them up and down. Upward (for example, following the growing demand), prices take off easily, “willingly”, and almost without delay (time lag). But with downward pressure on them, they instantly lose their flexibility and offer stubborn resistance. This interesting and important property of prices has been called the ratchet effect by economists (Figure 12-5). The main reason for this is the limited competition both in many markets for goods and services, where supply and, consequently, prices are controlled by large firms, and in resource markets, where, among other things, institutional constraints are strong (trade unions, labor laws, etc.). ). The psychological unwillingness of people to voluntarily agree to a reduction in nominal income also has a great influence, even the owners of private firms themselves try to avoid such measures as much as possible. So, large firms support prices, trying to reduce the loss of profits, but in a crisis, falling demand, this can only be done by reducing production (and jobs). Therefore, it is more likely that the economy will end up not at point M, but at point N, in a general downturn.

Growth in aggregate supply. From the above analysis, it follows that the position on the vertical segment of the AS curve is adequate to the position on the production possibilities curve, and the position on the horizontal segment of the AS curve is adequate to the position deep within the production possibilities sector (Fig. 12-6).

Rice. 12-6. Relationship between macroeconomic equilibrium and resource use.

An increase in aggregate supply looks like a shift in the AS curve to the right and down (Figure 12-7). This is tantamount to expanding the productive possibilities of the national economy and is reflected on the production possibilities curve as economic growth.

Rice. 12-7. Changing the Production Possibility Curve as Aggregate Supply Grows

Similarly, a contraction in aggregate supply, in which the AS curve shifts to the left and up (Figure 12-8), means a narrowing of the economy's productive possibilities.

Rice. 12-8. Changing the Production Possibility Curve as Aggregate Supply Decreases

Let us now consider the macroeconomic consequences of a change in aggregate supply, assuming, for simplicity, aggregate demand to be unchanged.

Rice. 12-9 Consequences of economic growth

On fig. 12-9 clearly shows the consequences of economic growth or any other expansion of national production capabilities - this is the most favorable and desirable thing that can happen to the economy, while the national product necessarily grows, and prices are pressed down by a powerful factor of growing productivity, which, in contrast from falling demand, they are "willingly" ready to obey. True, in reality, deflation (price reduction) is unlikely, since the growth of production will certainly be accompanied by an expansion of aggregate demand and the equilibrium will shift from point E 1 not to point E 2 , but to point E 3 . Economic growth is almost always accompanied by some moderate inflation, but the growth of aggregate demand creates additional incentives for the expansion of production and accumulation, and a decrease in average costs restrains inflation, preventing it from “dispersing”.

Reducing the aggregate supply. As much as the consequences of economic growth are beneficial for the economy, the most unpleasant and sad thing that can happen to it is the reduction in national production capabilities, the consequences of which are a simultaneous drop in production and an increase in prices (Fig. 12-10). This state of the economy is sometimes called stagflation - this is the so-called inflation of growing costs, the root cause of which is the deterioration of the economy's resource endowment.

Rice. 12-10. Consequences of the economic downturn

The main danger of such a state of the economy is that it drives the macroeconomic stabilization policy into a dead end: the fact is that anti-crisis policy usually gives the economy some inflationary impetus, while anti-inflationary policy leads to some decline in production and loss of jobs (due to the ratchet effect). If you look at the graph, it is easy to understand that in conditions of stagflation, the traditional methods of macroeconomic regulation are unacceptable, otherwise, by solving one problem, we will exacerbate another (and then at best).

However, in a normally developing economy of the "Western" type, the spontaneous occurrence of stagflation is unlikely due to the highest adaptive potential. The economies of developed countries faced this phenomenon seriously relatively recently, in the 70s, due to the coincidence of a number of unfavorable factors, the main of which was external: the rapid rise in oil prices due to the actions of the OPEC cartel and the prices of many other resources. The situation was saved by private initiative and scientific and technological revolution: in developed countries, a deep structural restructuring of the economy began in the direction of transition to resource-saving technologies, to a real intensive model of economic growth, i.e. stagflation was largely defeated at the microeconomic level: by the efforts of private firms rather than governments.

This is exactly how, in conditions of severe stagflation, the general crisis of the Russian economy is developing today. But the initial blow - a sharp reduction in production capabilities in the early 1990s - was so strong that it did not "tilt the barrel dangerously", as was the case with the "Western" economy in the 70s, but "tipped" it. At the same time, the absolute structural, institutional, psychological and professional unpreparedness of the Russian national economy, state and human resources for market relations and for such a catastrophe did not allow us to hope for a solution to problems “from below”.

"Shock therapy" further aggravated the situation. The liberalization of prices and all economic activity in January 1992 was carried out in conditions of extremely limited competition, extremely low productivity and high resource intensity, inflationary expectations pushed to the limit, a complete and general lack of adequate experience, in an economy with a "obsessed" with itself and highly militarized industrial structure. The immediate results were a shock rise in average costs in all industries, the "disappearance" of working capital, the transition of inflationary expectations "beyond all limits" and the beginning of a monstrous restructuring of the economy in terms of scale, nature, pace and consequences, including the almost complete curtailment of the accumulation process.

All of these factors immediately threw the A8 curve of the Russian economy sharply to the left and continue to put powerful pressure on it in the same direction. Of course, these processes cannot develop without end - in the same way as any fire will stop by itself, but what remains after the fire will bear little resemblance to the original building.

Topic: Aggregate demand. Aggregate offer.

multivariate test.

1. Aggregate demand is:

1. Total consumer spending at a constant price level
2. Sum of spending on consumption and investment
3. The value of goods purchased by both residents of the country and non-residents
4. Different quantities of goods and services to be purchased at all possible average price levels

2. An increase in the average price level leads to:

1. Increased consumer spending and reduced investment
2. Increase in consumer and investment spending
3. Reducing consumer and investment spending
4. Reduce consumer spending and increase investment

3. If the average price level falls, then other things being equal:

1. Financial assets lose their purchasing power
2. Owners of financial assets may increase purchases of consumer goods due to increased wealth
3. The aggregate demand curve will shift to the left
4. Everything is wrong
5. That's right

4. The aggregate supply curve shows that:

1. Changing the average price level
2. With a low level of production, it is relatively difficult to increase production.
3. Inverse relationship between the average price level and total output
4. If output rises, it is relatively easy to increase production further.

5. The vertical segment of the aggregate supply curve is called:

1. Keynesian
2. Classic
3. intermediate
4. Everything is wrong
5. That's right

6. Keynesian segment of the aggregate supply curve:

1. Looks like an ascending curve
2. Is vertical
3. Is horizontal
4. Has a negative slope

7. If an increase in aggregate demand occurs on a vertical segment of the aggregate supply curve, then:

1. Real output and price level will rise
2. Real output and price level will fall
3. Real output will increase and the price level will fall
4. Real output will not change, but the price level will rise

8. Which of the following will cause a reduction in aggregate supply:

1. Rise in the price level
2. Falling price level
3. Production crisis
4. Decrease in s / s production

9. A reduction in aggregate supply, ceteris paribus, will cause:

1. Decrease in real output and increase in the price level
2. Decrease in real output and lower price level
3. Increasing real output and lowering the price level
4. An increase in real output and an increase in the price level

True False

1. The aggregate demand curve is the sum of the individual demand curves for goods and services

(Wrong)

1. The aggregate demand curve has a negative slope, because an increase in the average price level leads to a decrease in total costs.

(Right)

1. An increase in investment shifts the aggregate demand curve to the right. A decrease in the price level, ceteris paribus, will lead to an increase in the consumption of goods and services, but the aggregate demand curve will not shift.

(Right)

1. If the level of real output rises, then the slope of the aggregate supply curve will increase.

(Wrong)

1. An increase in aggregate demand is not related to the shape of the aggregate supply curve.

(Right)

1. Since the aggregate supply curve always has a vertical segment, therefore, any increase in aggregate demand will lead to an increase in the price level.

(Wrong)

1. The vertical segment of the aggregate supply curve is called the classical segment.

(Right)

1. An increase in aggregate demand, ceteris paribus, always leads to an increase in real output.

(Wrong)

1. Ceteris paribus, an increase in aggregate supply will lead to an increase in real output and a decrease in the average price level.

(Right)

Finish the sentence.

1. Decrease in the average price level leads to an increase in aggregate demand. Increased consumption and investment, other things being equal, always leads to an increase in aggregate demand.
2. The curve reflecting the relationship between total spending on goods/services and the average price level is called aggregate demand curve .
3. The horizontal section of the aggregate supply curve is called Keynesian line segment. Vertical cut - classical line segment.
4. If the aggregate supply curve is horizontal, then an increase in aggregate demand, ceteris paribus, will lead to an increase in volume of GDP (production) , a average price level Will not change.
5. If the aggregate supply curve is vertical, then an increase in aggregate demand will increase average price level , a GDP (production) it will not change.
6. If the economy is experiencing high unemployment, then the government can reduce unemployment and increase real output by applying policies that will cause the aggregate demand curve to shift. right up and the aggregate supply curve left down .
7. The government can reduce high inflation by applying policies that will cause the aggregate demand curve to shift left down , and the aggregate supply curve right up .

Exercises.

1. The table presents data on the aggregate demand of the economy of country A:

1. Plot the aggregate demand curve

Price level AS AS 1

140- AS=AD AD=AS 1

130-

120-

110-

100-

90-AD

80 -

0 40 80 120 160 200 240 280 GDP

1. If country A's aggregate supply curve data is:

Plot the aggregate supply curve using the same ordinates.

1. What is the equilibrium price level and real output.

Average price level - 110

Production volume - 160

2. Based on the previous task, suppose that total supply increased by $60 million at each average price level.

1. Complete the Aggregate Supply Table

1. Draw a new aggregate supply curve (AS 1) using the previous graphs.
2. Suppose demand has changed. What will be the new price level? Real production volume?

New price level - 100

Real production volume - 200

3. Using the theory of aggregate demand - aggregate supply, show graphically what effect the following events will have on the price level and output (other conditions are not changed).

1. The aggregate supply curve is an intermediate segment. Investment and consumption are on the rise.

P AS

AD 1

AD

GDP

The society will increase income, price level and GDP,

1. The aggregate supply curve is a horizontal line. Government spending is on the rise.