Overview
Aggregate supply and demand are supply and demand curves that are aggregated across goods for a single economy. That is, they dont represent a single good or service, but the sum total goods and services in an economy.
It is to be noted that the aggregate curves are distinct from the supply and demand curves used in microeconomics. That is, the logic of whether the curve is sloping and by how much requires a different analysis than that provided in microeconomics.
Time Frames
When constructing a curve, it is understood that the curve represents a quantity supplied or demanded over a pre-defined time frame. (example, a week or a month)
Supply and Demand Curves
A sample set of supply and demand curves. The sliders move each curve showing the impact on the equilibrium point.
These curves are drawn over the medium term. To view the effects of the time frame, please see time frames.
Business Cycle
The conventional wisdom about aggregate supply and demand is that the demand curve moves faster than the supply curve. This in turn is usually interpreted to mean that
- Business cycles is usually driven by changes in the demand curve.
- Policy that is designed to pull an economy out of a recession should be mostly demand based
- Policies designed to target economic growth are typically designed to move the aggregate supply curve.