Economics - Aggregate Demand
Introduction
Aggregate demand is normally understood in the context of the total value of goods and services demanded by a given group of consumers at a given time period and at a given price (Brux 2007, p. 375). In other words, aggregate demand essentially refers to the value of goods and services consumers are willing to purchase at various price levels. In certain economic literature, the aggregate demand is often referred to as the ‘effective demand’ but it bears close similarity to the gross domestic product of a given country when the inventory does not change (Murad 1962). An increase or decrease in aggregate demand is brought about by a number of factors but the most common are the increase or decrease in investments and in equal measure, the increase or decrease in consumers’ disposable income (Baumol 2009, p. 606). Aggregate demand shares a strong relationship with basic functional areas of the economy because economics is more or less defined by the demand and supply of goods and services (among other factors). However, this study seeks to establish the relationship between aggregate demand and unemployment, inflation, balance of payment (BOP) and the economic growth of an economy. This analysis will therefore constitute the overall overview of how aggregate demand interacts with basic macro economic factors.
Unemployment
Unemployment is normally represented as a state in the economy where the number of people willing and are able to work fail to find employment positions (Kheir-El-D 2008, p. 141). For computation purposes, unemployment is normally expressed as a percentage of the total number of workforce a nation has but its correct ascertainment is usually a variable of a number of factors in the economy such as the aggregate demand. The aggregate demand has a unique relationship with unemployment. The relationship is however not evident to the ‘naked’ eye because it is rather indirect. Basically, aggregate
Aggregate demand is normally understood in the context of the total value of goods and services demanded by a given group of consumers at a given time period and at a given price (Brux 2007, p. 375). In other words, aggregate demand essentially refers to the value of goods and services consumers are willing to purchase at various price levels. In certain economic literature, the aggregate demand is often referred to as the ‘effective demand’ but it bears close similarity to the gross domestic product of a given country when the inventory does not change (Murad 1962). An increase or decrease in aggregate demand is brought about by a number of factors but the most common are the increase or decrease in investments and in equal measure, the increase or decrease in consumers’ disposable income (Baumol 2009, p. 606). Aggregate demand shares a strong relationship with basic functional areas of the economy because economics is more or less defined by the demand and supply of goods and services (among other factors). However, this study seeks to establish the relationship between aggregate demand and unemployment, inflation, balance of payment (BOP) and the economic growth of an economy. This analysis will therefore constitute the overall overview of how aggregate demand interacts with basic macro economic factors.
Unemployment
Unemployment is normally represented as a state in the economy where the number of people willing and are able to work fail to find employment positions (Kheir-El-D 2008, p. 141). For computation purposes, unemployment is normally expressed as a percentage of the total number of workforce a nation has but its correct ascertainment is usually a variable of a number of factors in the economy such as the aggregate demand. The aggregate demand has a unique relationship with unemployment. The relationship is however not evident to the ‘naked’ eye because it is rather indirect. Basically, aggregate
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