Name: Mohsin Ali Khan Public Policy

FACTORS AFFECTING AGGREGATE DEMAND AND AGGREGATE SUPPLY

Variables

Aggregate Demand Unemployment, Devaluation of currency

Aggregate Supply Taxes, Government subsidies, production cost

Aggregate Demand
Real GDP Price Equilibrium Economic Recession

Unemployment affects Aggregate demand is Unemployment and devaluation

GDP growth because of
less productive market,
lack of capital in increasing
volume of the goods and
services produced in the
country.
OUTCOM
ES Unemployment affect
aggregate demand as a
whole because if there is no
earning their will be less or
no spending on consuming
goods and services.
affected also because of no of currency is directly related to
control price mechanism in recession in economy that is small
the economy. If price of market and industrial
wheat is increased, it would development led to diminutive
prove beneficial for the jobs opportunities and output.
farmers but on the other
hand it would affect the
urban poor’s to buy it.
Devaluation of currency Further this lead to decreasing
also affect the price trend in aggregate demand as
equilibrium because if prices are high and income is low,
currency is devalued then so less people would buy the
production and goods and services.
consumption of goods will
decrease as production cost
would be more and output
will remain same.
Name: Mohsin Ali Khan Public Policy

Aggregate Supply
Real GDP Price Equilibrium Economic Recession
Aggregate supply affects If the price of products Similarly increased taxes
GDP in long and short run increases then demand and containing subsidies
that is, in the long run would be less causing would create pressure on
market policies, imbalance in the market the market, if the market
government subsidies economy. Similarly is competitive then its
policies, trade polices decrease in product price output would be efficient,
affects the producer will create demand but on the other end if market
output. In short run the output cost would be is weak then it would
sudden shift in prices of high. become a burden on the
land, labor and capital economy.
OUTCOMES affects aggregate supply.
Technology and skilled Government subsidies Government intervention
labor are essential play an important role in in the market is necessary
element in increasing increasing the output of to control price of the
production, if these two the market sector. Relief goods and services but if
are missing then real GDP on taxes and provision of tax relief and subsidies
would be fewer as subsidies decrease the are provided to
production cost would be cost of production and incompetent producers,
high and output would be increase the volume of the then economic growth
less. output. would decline.

Skilled labor creates competitive market with low output cost because their efficiency and
effectiveness generates double output as compared to semi-skilled or unskilled labor.
Technological progress is necessary in the market because globalization and day to day
innovation has provided many opportunities for the consumers but creating difficulties for the
producers because one good and services is provided by many producers. Secondly government
intervention is necessary because it create opportunities for the niche industries and discourage
inefficient industries, so that monetary and subsidy policies are made particularly for the
dynamic markets.