2nd SCENARIO

2nd SCENARIO By XXXX Macroeconomics XXXXXXX XXXXXXx XXXXXX University

2nd SCENARIO 2nd SCENARIO Graph for Aggregated Supply and Demand

The X axis is the Real Domestic Output (RDO) in the economy The Y axis is the Price Level (PL) AD and AD1 is the Aggregated Demand curve while AS is the Aggregated Supply Curve

Supply and Demand Graph for Microeconomics:

The X axis is the Quantity (Q1, Q2) of the goods or services The Y axis is the Price (P1, P2) of the goods or services S1 and S2 is the Supply curves while D1 and D2 is the Demand curves

2nd SCENARIO Answers to the 2nd Scenario The Demand of certain goods or services are determined through:
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The amount of money the consumers make The things the consumers like or prefer The price of the certain goods or services the consumers desire The amount of consumers that are interested in the goods or the services

The Supply of certain goods or services is determined through

- The technology that is available - The prices of the goods and services

- The taxes on the goods or services

- The amount of suppliers that are available

The Aggregate Demand is the total demand for all the products and/or services that is available at a particular time and set at a particular price level. When inventory levels are fixed or motionless, the (real GDP) Gross Domestic Product of the nation is formed through the aggregate demand which is outlined through four main elements:
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C is for the consumption which is the value of consumption expenses for all the people in the nations economy.

I is for the Gross Domestic Private Investment which is the overall amount of money that is spent by all privately owned production companies in a nations economy which is used to calculate the GDP

G is for the Gross Government consumption and stock that is in the nations economy

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Gross exports made by a nations economy is the difference of the entire number of exports (X) and the entire number of imports (M) Therefore, the Aggregate Demand formula is AD = C + I + G + (X M) (harpercollege.edu)

The following factors determine Aggregate Demand:

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Monetary Policy which is the amount of money in the economy and it involves how the money supply is managed in a nations economy by controlling the interest rates to help stimulate the countrys economic growth

Fiscal Policy is the revenue that the government collects through taxing and expenditures on businesses and society which in helps to influence the growth of the economy.

Also, the level of joblessness in a nations economy Universal situations

The Aggregate Supply is the supply of all the goods and services in the nations economy that all businesses are willing and able to produce at a set price level in relationship to the real GDP (web.missouri.edu). The Aggregate Supply can be defined in three methods:
- The Short Run Aggregate Supply (SRAS) once the capital used for production is set

to show the relationship of the price level on its curve

- The Medium Run Aggregate Supply (MRAS) is directly affected by capital, labour

and wage, as well as technology which can change on the curve

- Long Run Aggregate Supply (LRAS) is when the sum total of the factors of

production is working at their peak and they are not affected by the price level. The factors of Aggregate Supply:

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Productivity of the nations economy such as the degree that technology is used Labours Supply and demand Total funds of stock Prices

1) The supply of fish became scarce because of the lack of fishing after Hurricane Katrina. The result of the decrease of fish caused the equilibrium price to go down as well as the labour to decrease which resulted in the supply curve to shift leftward.

2) The rightward shift in the demand curve happened because the quantity increased the

demand for the microchip which gave consumers better technology which resulted in the rise of the equilibrium price. 3) The price of the imported cheese rose because of the tariffs placed on imports and it had a direct result for the supply to decrease although the demand stayed the same. This also caused the equilibrium price to go up and the amount of cheese to fall. The tariffs also influenced the supply curve to move to the left at a constant price which had an effect on the supply of the cheese because of the input cost increase.
4) Once polyester suits come back in style the demand for the suit will rise and the

supply will cause the equilibrium price to go up and the demand curve will move leftward.
5) The better technology becomes the more demand for the technology will increase and

this will cause production for the product to rise as well. The more the demand is the more production will be needed which will cause unemployment to reduce for the

2nd SCENARIO goods or services on the internet auction site. The aggregate supply curve will rise and the equilibrium price level will rise and the result will be the demand curve shifting rightward.
6) If red wine will lower cholesterol it will have an increasing effect on the demand

curve. The demand curve will move to the right because the equilibrium price and the amount that is sold will rise which means that the increase in the demand will cause the increase in the supply to remain constant.
7) The aggregate supply of all products and services will decrease because the

manufactures input cost rose due to the taxes the government has raised. The taxes will decrease the disposable incomes and this will shrink the aggregate demand. The aggregate supply curve will move down and the aggregate demand curve will shift leftward and the equilibrium price level will move downward on the aggregate supply curve. 8) Increase on the aggregate demand curve can cause inflation in an economy and the decrease in the real domestic output can also cause inflation. Once inflation increases it will cause movement on the aggregate supply curve. The equilibrium point will rise up on the vertical aggregate supply curve when the real domestic output was at complete employment. Plus, an increase in the money supply can cause an increase in the aggregate demand which will have a result in the equilibrium price to go up on the aggregate supply curve. 9) Relaxed immigration laws can cause the labour supply to rise which will increase the employment level which would cause a rising movement on the aggregate supply curve and this could also create more disposable incomes. The equilibrium price level will move up the aggregate supply curve and the aggregate demand curve will shift to

2nd SCENARIO the right if more disposable incomes are created through the relaxed immigration labour laws. 10) Once the government increases the spending in an economy it will cause an increase in the aggregate demand because of the increase in investments. This will have a result in the equilibrium price level moving up on the aggregate supply curve.

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References Houston Chronicle, Three-Stage Aggregate Supply Curve, Retrieved from smallbusiness.chron.com on October 15, 2012 Harper College, A Model of the Macro-Economy: Aggregate Demand and Supply, Retrieved from harpercollege.edu on October 15, 2012