Aggregate demand (AD) and aggregate supply (AS) play a big role in how our economy works. Here are some important points to think about:
Inflation: When aggregate demand is higher than aggregate supply, prices go up. This situation is called inflation. For example, if people suddenly start spending a lot more money but companies can’t produce enough products, prices will rise.
Employment: When AD and AS are balanced, businesses can change how much they produce. If demand goes up, it might create more jobs. But if demand goes down, more people could lose their jobs.
Economic Growth: Keeping a steady balance between AD and AS helps the economy grow. When businesses see that demand is steady, they feel more confident to invest money. This can lead to more jobs and even bigger businesses.
By understanding how these factors work together, leaders can make better choices for the economy.
Aggregate demand (AD) and aggregate supply (AS) play a big role in how our economy works. Here are some important points to think about:
Inflation: When aggregate demand is higher than aggregate supply, prices go up. This situation is called inflation. For example, if people suddenly start spending a lot more money but companies can’t produce enough products, prices will rise.
Employment: When AD and AS are balanced, businesses can change how much they produce. If demand goes up, it might create more jobs. But if demand goes down, more people could lose their jobs.
Economic Growth: Keeping a steady balance between AD and AS helps the economy grow. When businesses see that demand is steady, they feel more confident to invest money. This can lead to more jobs and even bigger businesses.
By understanding how these factors work together, leaders can make better choices for the economy.