The connection between aggregate demand (AD) and aggregate supply (AS) is very important for keeping the economy stable. But this relationship can also create some big challenges.

Here’s how it works:

1. Economic Changes:

   • When aggregate demand is high, it can cause prices to go up, known as inflation, especially if aggregate supply doesn’t increase at the same rate.
   • On the other hand, if aggregate demand is low, it can lead to job losses and a drop in economic activity, which is called a recession.

2. Limits on Supply:

   • There are things that can limit aggregate supply. For example, if factories can’t produce enough or if there aren’t enough resources, supply will be affected.

3. Finding a Balance:

   • To fix these issues, leaders in government can use different strategies, like money policies or spending plans, to help balance aggregate demand and supply.
   • However, figuring out the right time to make these changes can be tricky. There are often political issues and economic problems that make it hard to implement these plans successfully.