AA Schedule
An AA schedule, also known as the Aggregate Expenditure schedule, represents the total planned spending in an economy at different levels of income. It shows the relationship between aggregate expenditure and national income, providing insights into the equilibrium level of income and output in an economy. This schedule is a key tool in analyzing the macroeconomic equilibrium and the impact of changes in spending.
5 Key excerpts on "AA Schedule"
eBook - ePubContemporary Economics
An Applications Approach
- Robert Carbaugh(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...This model is shown in Figure 12.1. On the vertical axis is the average price level in the economy, as measured by the consumer price index. On the horizontal axis is the total quantity of goods and services. Because we are adding together many different kinds of products, their dollar value is used to represent quantity in Figure 12.1. To keep out the effects of inflation, this quantity is given in real terms—that is, real GDP. Figure 12.1 Macroeconomic Equilibrium The economy is in equilibrium when aggregate supply equals aggregate demand. This intersection determines the equilibrium price level and output for the economy. In Figure 12.1, the aggregate demand curve shows the total demand of all people for all final goods and services produced in an economy. The aggregate supply curve is the total supply of all final goods and services in an economy. The economy is in equilibrium when aggregate demand equals aggregate supply. This is where the two lines cross in Figure 12.1 at point A. To understand the nature of macroeconomic equilibrium, let us examine the forces that shape the aggregate demand and aggregate supply curves. Aggregate Demand The aggregate demand curve shows the total amount of final goods and services (real GDP) that buyers will purchase at alternative price levels during a given year. Recall that the total amount of final goods and services can be divided into the amounts spent for consumption, investment, government purchases, and net exports. The aggregate quantity demanded is the quantity of final output that buyers will purchase at a given price level. As seen in Figure 12.1, the aggregate demand curve may look like a market demand curve, but it’s really different...
eBook - ePub- W. Charles Sawyer, Richard L. Sprinkle(Authors)
- 2020(Publication Date)
- Routledge(Publisher)
...In order to determine the equilibrium price level and equilibrium level of total output (GDP) for an open economy, we need to describe total production (or supply) of goods and services. Aggregate supply is the relationship between the total quantity of goods and services an economy produces at various price levels, holding all other determinants of production unchanged. The aggregate supply (AS) curve is a graphical representation of aggregate supply as shown in Figure 16.3. FIGURE 16.3 The aggregate supply curve Notice that the aggregate supply curve slopes upward and to the right, indicating that as the price level rises, the quantity of goods and services produced by the economy increases. If this supply curve represented the supply of a particular good, the relationship between the price of the product and the quantity produced would be clear. At higher prices, producers would be willing to supply more goods and services. However, aggregate supply represents the economy’s total production (supply) in the short run. In this case, a higher price level is necessary to induce a higher level of total production in the economy. In the case of the aggregate supply of a country, we assume that in the short run the economy’s labor force, capital stock, stock of natural resources, and level of technology are all held constant. The upward slope of the aggregate supply curve is related both to a rising demand for the output of the economy and rising unit costs as the economy starts operating closer to full employment. Unit costs tend to rise because as output expands, the prices of some inputs used in the production of final goods will begin to rise even before the economy as a whole reaches full employment. This occurs as a result of different demand and supply conditions in the various input markets...
eBook - ePubFoundations of Macroeconomics
Its Theory and Policy
- Frederick S. Brooman(Author)
- 2017(Publication Date)
- Routledge(Publisher)
...CHAPTER 10 Prices, Wages, and Aggregate Supply 1. The Aggregate Supply Curve In the last five chapters, the various components of aggregate demand – consumption, investment, government spending, exports, and (negatively) imports – have been examined in detail, especially with regard to their relationship with current real income. It was found that consumption depends partly on income and partly on such other factors as consumers’ assets and liabilities; that investment may be influenced to a small extent by current income but depends much more on firms’ expectations of future profit, on past changes in income, and on the cost of financing new projects; that government spending, being largely determined by political decisions about such matters as the necessary scale of defense expenditure, is essentially autonomous of current income; and that, while imports can be expected to vary with income to some degree, exports are affected only indirectly through the feedback described in Chapter 8. In the light of all these findings, the original “equilibrium equation” C + I + G + E – M has been amplified and extended in various ways so as to bring in the marginal propensities to consume, import, and invest; to allow for the effects of taxation; to introduce additional variables such as income from previous periods, and so on. Obviously the equation could be expanded and elaborated still further along these lines. However, the fact remains that, as it stands, the “equilibrium condition” is subject to a serious limitation – namely, that because all quantities are stated in real terms, it throws no light on the determination of the general price level. Yet the behavior of prices is of great interest and importance to individuals, business firms, and governments...
eBook - ePub- Mauro Gallegati, Antonio Palestrini, Alberto Russo, Mauro Gallegati, Antonio Palestrini, Alberto Russo(Authors)
- 2017(Publication Date)
- Academic Press(Publisher)
...By summing up the notional quantity at individual level we obtain both the aggregate demand and supply. In this way, we provide a simple visualization of complex macroeconomic dynamics, similar to that proposed in the mainstream approach. Therefore, we can study the similarities and differences between the mainstream and the agent-based frameworks, trying to understand the role of heterogeneity and interaction in shaping aggregate curves and macroeconomic equilibria. The chapter is organized as follows. Section 3.2 briefly reviews the standard textbook approach to the AD-AS equilibrium. Section 3.3 describes the agent-based macroeconomic model. Sections 3.4 and 3.5 illustrate the methodology used to build the aggregate demand and the aggregate supply curves, respectively. Section 3.6 concludes by discussing the difference between the mainstream equilibrium and the agent-based disequilibrium approach. 3.2 The Standard AD-AS Model The AD-AS model is a standard tool in macroeconomic analysis. AD represents the aggregate demand, whereas AS stays for aggregate supply. This is explained to students when the macroeconomic theory is introduced, often preceded by the IS-LM model (with fixed prices). Indeed, in an introductory course on macroeconomics, when organized starting from the analysis of the short-run to proceed with the medium- and then the long-run analysis of economic growth, one firstly is taught the IS-LM model, and then the AD curve can be constructed on this basis, corresponding to an IS-LM model with flexible prices. Based on the Phillips curve, which is on the inverse relationship between (wage) inflation and unemployment, typically assuming a constant mark-up, the AS curve is introduced, and the AD-AS model can be used for the macroeconomic analysis of the medium run. In its simplest form, the AD-AS model is represented as the interaction between two linear curves, though nonlinear relationships are quite commonly employed...
eBook - ePub- Harlan M. Smith(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...The upswing of a business cycle may be described by the curve, but when a downswing follows, the economy does not ride back down the curve, with prices falling but no output drop at first. Rather, output tends to drop first, for reasons explained by various institutional semi-rigidities in prices and wages, and only after prolonged unemployment and recession are prices likely to drop much. The result is a sort of spiral in wages and prices over cycles, and an upward trend in the price level over time. Successive cycles move the Phase 3 line slowly to the right, representing increases in potential output arising from growth in productivity and in the volume of employed resources (capital and labor). Reviewing now the analysis of the shift from the micro to the macro level in the treatment of demand and supply, the analysis led to dropping the aggregate demand curve, substituting the total volume of spending, and reinterpreting the aggregate supply curve. At the macro level, quantities supplied and quantities demanded are never even semi-independent but each is the major determinant of the other, and neither can be treated as an independent function of price. Changes in aggregate quantity supplied are ordinarily based upon expected changes in the aggregate quantity demanded, but innovation or other changes on the supply side can occur independently and produce changes in aggregate demand. We also have analyzed the things that determine some degree of accompanying change in the price level. The textbooks discuss how a change in the aggregate demand or supply curve produces a new equilibrium. But this should be only a stepping-stone to discussing the somewhat irregular fluctuations in output that we often lump under the heading of business cycles. Economic historians can tell us that each “cycle” is somewhat unique, but economists ignore their uniqueness, however important the differences may sometimes be, to focus upon common features...
