ECO/372 ECO370 ECO 372 Week 2 Discussion Question 3

ECO/372 ECO370 ECO 372 Week 2 Discussion Question 3

In your opinion, which two determinates currently have the greatest impact on aggregate demand and supply? Justify your response with an example.

Changes in the variables that effect supply and demand:

Aggregate Demand:  Income, wealth, population, interest rates, credit availability, government demands, taxation, foreign demand, investments, expectations that are based on inflationary, income, wealth and interest rate.

Aggregate Supply: Cost of labor (wages) and resources, Investment, productivity, interest rates, credit availability, foreign supply, expectations for profits, inflationary and interest rates, and taxation.

An example, the impact of demands for higher wages in an economy that is not experiencing productivity gains compared to one that is. All workers have the right to expect an increase in their standards or living over time, and they will try to raise their incomes through wage increases.  So, wage increases will raise income and this will cause aggregate demand cures to shift. if the wage increases occur when the economy is running high (full), and there is no productivity gain, the result if mostly pure inflation with no substantial increase in standard of living (the worker is disappointed by inflation)..