The totality of final goods) that consumers, businesses and the government are willing to buy (for which there is demand in the country's markets) at a given price level (at a given time, under given conditions).

Aggregate demand () is the sum of planned expenses for the purchase of final products; it is the real output that consumers (including firms and governments) are willing to buy at a given price level. The main factor influencing this is the general price level. Their relationship is reflected by the curve, which shows the change in the total level of all expenses in the economy depending on changes in the price level. The relationship between real output and the general price level is negative or inverse. Why? To answer this question, it is necessary to identify the main components: consumer demand, investment demand, government demand and net exports, and analyze the impact of price changes on these components.

Aggregate demand

Consumption: As the price level rises, real purchasing power falls, causing consumers to feel less wealthy and therefore buy a smaller share of real output than they would have bought at the same price level.

Investments: An increase in the price level usually leads to an increase in interest rates. Credit becomes more expensive, which deters firms from making new investments, i.e. an increase in the price level, affecting interest rates, leads to a decrease in the second component - the real volume of investment.

Government procurement of goods and services: to the extent that state budget expenditure items are determined in nominal monetary terms, the real value of government purchases will also decrease as the price level rises.

Net exports: As the price level in one country rises, imports from other countries will rise and exports from that country will fall, resulting in a fall in real net exports.

Equilibrium price level and equilibrium output

Aggregate supply and demand influence the establishment of the equilibrium general price level and the equilibrium volume of production in the economy as a whole.

All other things being equal, the lower the price level, the larger part of the national product consumers will want to purchase.

The relationship between the price level and the real volume of the national product that is in demand is expressed by the aggregate demand schedule, which has a negative slope.

The dynamics of consumption of the national product are influenced by price and non-price factors. The effect of price factors is realized through a change in the volume of goods and services and is expressed graphically by movement along a curve from point to point. Non-price factors cause a change in , shifting the curve left or right to or .

Price factors other than price level:

Non-price determinants (factors) influencing aggregate demand:

• Consumer spending, which depends on:
  • Consumer welfare. As wealth increases, consumer spending increases, that is, AD increases
  • Consumer expectations. If an increase in real income is expected, then expenses in the current period increase, that is, AD increases
  • Consumer debts. Debt reduces current consumption and AD
  • Taxes. High taxes reduce aggregate demand.
• Investment costs, which include:
  • Changes in interest rates. An increase in the interest rate will lead to a decrease in investment spending and, accordingly, a decrease in aggregate demand.
  • Expected returns on investment. With a favorable prognosis, AD increases.
  • Business taxes. When taxes increase, AD decreases.
  • New technologies. Usually lead to an increase in investment spending and an increase in aggregate demand.
  • Excess capacity. They are not fully used, there is no incentive to build up additional capacity, investment costs are reduced and AD falls.
• Government spending
• Net Export Expenses
• National income of other countries. If the national income of countries increases, then they increase purchases abroad and thereby contribute to an increase in aggregate demand in another country.
• Exchange rates. If the exchange rate for its own currency increases, then the country can purchase more foreign goods, and this leads to an increase in AD.

Aggregate offer

Aggregate supply is the real volume that can be produced at different (certain) price levels.

The law of aggregate supply - at a higher price level, producers have incentives to increase production volume and, accordingly, the supply of manufactured goods increases.

The aggregate supply graph has a positive slope and consists of three parts:

• Horizontal.
• Intermediate (ascending).
• Vertical.

Non-price factors of aggregate supply:

• Changes in resource prices:
  • Availability of internal resources
  • Prices for imported resources
  • Market dominance
• Change in productivity (output/total costs)
• Legal changes:
  • Business taxes and subsidies
  • Government regulation

Aggregate supply: classical and Keynesian models

Aggregate offer() is the total amount of final goods and services produced in the economy; it is the total real output that can be produced in a country at various possible price levels.

The main factor influencing , is also the price level, and the relationship between these indicators is direct. Non-price factors are changes in technology, resource prices, taxation of firms, etc., which is graphically reflected by a shift of the AS curve to the right or left.

The AS curve reflects changes in total real output as a function of changes in the price level. The shape of this curve largely depends on the time period in which the AS curve is located.

The difference between the short and long term in macroeconomics is associated mainly with the behavior of nominal and real quantities. In the short term, nominal values ​​(prices, nominal wages, nominal interest rates) change slowly under the influence of market fluctuations and are “rigid”. Real values ​​(output volume, employment level, real interest rate) change significantly and are considered “flexible”. IN long term the situation is exactly the opposite.

Classic AS model

Classic AS model describes the behavior of the economy in the long run.

In this case, the AS analysis is built taking into account the following conditions:

• the volume of output depends only on the number of production factors and technology;
• changes in factors of production and technology occur slowly;
• the economy operates at full employment and output is equal to potential;
• prices and nominal wages are flexible.

Under these conditions, the AS curve is vertical at the level of output at full employment of production factors (Fig. 2.1).

Shifts in AS in the classical model are possible only when the value of production factors or technology changes. If there are no such changes, then the AS curve in the short run is fixed at the potential level, and any changes in AD are reflected only in the price level.

Classic AS model

• AD 1 and AD 2 - aggregate demand curves
• AS - aggregate supply curve
• Q* is the potential production volume.

Keynesian AS model

Keynesian AS model examines the functioning of the economy in the short term.

The analysis of AS in this model is based on the following premises:

• the economy operates under conditions of underemployment;
• prices and nominal wages are relatively rigid;
• real values ​​are relatively mobile and quickly respond to market fluctuations.

The AS curve in the Keynesian model is horizontal or has a positive slope. It should be noted that in the Keynesian model the AS curve is limited on the right by the level of potential output, after which it takes the form of a vertical straight line, i.e. actually coincides with the long-term AS curve.

Thus, the volume of AS in the short term depends mainly on the value of AD. In conditions of underemployment and price rigidity, fluctuations in AD primarily cause a change in output (Figure 2.2) and only subsequently can be reflected in the price level.

Keynesian AS model

So, we looked at two theoretical models of AS. They describe different reproduction situations that are quite possible in reality, and if we combine the assumed forms of the AS curve into one, we will get an AS curve that includes three segments: horizontal, or Keynesian, vertical, or classical, and intermediate, or ascending.

Horizontal segment of the AS curve consistent with a recessionary economy, high unemployment and underutilized production capacity. Under these conditions, any increase in AD is desirable, since it leads to an increase in output and employment without increasing the general price level.

Intermediate segment of the AS curve assumes a reproduction situation where an increase in real production volume is accompanied by a slight increase in prices, which is associated with the uneven development of industries and the use of less productive resources, since more efficient resources are already used.

Vertical segment of the AS curve occurs when the economy is operating at full capacity and it is no longer possible to achieve further growth in output in the short term. An increase in aggregate demand under these conditions will lead to an increase in the general price level.

General AS model.

• I - Keynesian segment; II - classic segment; III - intermediate segment.

Macroeconomic equilibrium in the AD-AS model. Ratchet effect

The intersection of the AD and AS curves determines the macroeconomic equilibrium point, the equilibrium output volume and the equilibrium price level. A change in equilibrium occurs under the influence of shifts in the AD curve, the AS curve, or both.

The consequences of an increase in AD depend on which segment of AS it occurs on:

• on the horizontal segment AS, an increase in AD leads to an increase in real output at constant prices;
• on the vertical segment AS, an increase in AD leads to an increase in prices with a constant output volume;
• in the intermediate segment AS, an increase in AD generates both an increase in real output and a certain increase in prices.

Reducing AD should lead to the following consequences:

• on the Keynesian segment AS, real output will decrease and the price level will remain unchanged;
• in the classic segment, prices will fall, and real output will remain at full employment;
• In the intermediate period, the model assumes that both real output and the price level will decline.

However, there is one important factor that modifies the effects of AD reduction in the classic and intermediate periods. The reverse movement of AD from position in (Fig. 2.4) may not restore the original equilibrium, at least in the short term. This is due to the fact that prices for goods and resources in the modern economy are largely inflexible in the short term and do not show a downward trend. This phenomenon is called the ratchet effect (a ratchet is a mechanism that allows the wheel to turn forward, but not backward). Let us consider the effect of this effect using Fig. 2.4.

Ratchet effect

The initial growth of AD, to the state, led to the establishment of a new macroeconomic equilibrium at the point, which is characterized by a new equilibrium price level and production volume. A fall in aggregate demand from the state to will not lead to a return to the initial equilibrium point, since increased prices do not tend to decrease in the short term and will remain at the level. In this case, the new equilibrium point will move to the state, and the real level of production will decrease to the level.

As we found out, the ratchet effect is associated with price inflexibility in the short term.

Why do prices not tend to decrease?

• This is primarily due to the inelasticity of wages, which accounts for approximately ¾ of the firm’s expenses and significantly affects the price of products.
• Many firms have significant monopoly power to resist lower prices during periods of falling demand.
• Prices for some types of resources (other than labor) are fixed by the terms of long-term contracts.

However, in the long run, when prices fall, prices will go down, but even in this case, the economy is unlikely to be able to return to its original equilibrium point.

Rice. 1. Consequences of AS growth

AS Curve Offset. As aggregate supply increases, the economy moves to a new equilibrium point, which will be characterized by a decrease in the general price level while a simultaneous increase in real output. A decrease in aggregate supply will lead to higher prices and a decrease in real NNP
(Fig. 1 and 2).

So, we examined the most important macroeconomic indicators - aggregate demand and aggregate supply, identified the factors influencing their dynamics, and analyzed the first model of macroeconomic equilibrium. This analysis will serve as a springboard for a more detailed study of macroeconomic problems.

Rice. 2. Consequences of the fall of AS

Keynesian model for determining equilibrium output, income and employment

To determine the equilibrium level of national production, income and employment, the Keynesian model uses two closely interrelated methods: the method of comparing aggregate expenditures and output and the method of “withdrawals and injections”. Let's consider the first method "expenses - production volume". To analyze it, the following simplifications are usually introduced:

• there is no government intervention in the economy;
• the economy is closed;
• the price level is stable;
• there is no retained earnings.

Under these conditions, total spending is equal to the sum of consumption and investment spending.

To determine the equilibrium volume of national production, the investment function is added to the consumption function. The total expenditure curve intersects the line at an angle of 45° at the point that determines the equilibrium level of income and employment (Fig. 3).

This intersection is the only point at which total costs are equal. No level of NNP above the equilibrium level is sustainable. Inventories of unsold goods rise to undesirable levels. This will encourage entrepreneurs to adjust their activities in the direction of reducing production volume to the equilibrium level.

Rice. 3. Determination of equilibrium NNP using the "expenses - production volume" method

At all potential levels below the equilibrium, the economy tends to spend more than entrepreneurs produce. This encourages entrepreneurs to expand production to the equilibrium level.

Extraction and injection method

The method of determining by comparing expenditures and output makes it possible to clearly present total expenditures as a direct factor determining levels of production, employment and income. Although the cap-and-inject method is less straightforward, it has the advantage of focusing on inequality and NNP at all but equilibrium levels of output.

The essence of the method is as follows: given our assumptions, we know that the production of any volume of output will provide an adequate amount of income after taxes. But it is also known that households can save part of this income, i.e. do not consume. Saving, therefore, represents the withdrawal, leakage, or diversion of potential expenditure from the expenditure-income stream. As a result of saving, consumption becomes less than total output, or NNP. In this regard, consumption by itself is not enough to remove the entire volume of production from the market, and this circumstance, apparently, leads to a decrease in total production. However, the business sector does not intend to sell all products only to final consumers. Some of the production takes the form of means of production, or investment goods, which will be sold within the business sector itself. Therefore, investment can be viewed as an injection of expenditure into the income-expenditure flow, which complements consumption; in short, investments represent potential compensation, or reimbursement, for withdrawals from savings.

If the withdrawal of funds from savings exceeds the injection of investment, then the NNP will be less, and the given level of NNP will be too high to be sustainable. In other words, any level of NNP where saving exceeds investment will be above the equilibrium level. Conversely, if the injection of investment exceeds the leakage of funds to savings, then there will be more than the NNP, and the latter should rise. Let us repeat: any amount of NNP when investment exceeds saving will be below the equilibrium level. Then, when, i.e. When the leakage of funds to savings is fully compensated by injections of investment, total spending equals output. And we know that such equality determines the equilibrium of the NPP.

This method can be illustrated graphically using saving and investment curves (Figure 3.6). The equilibrium volume of NNP is determined by the point of intersection of the saving and investment curves. Only at this point the population intends to save as much as entrepreneurs want to invest, and the economy will be in a state of equilibrium.

Change in equilibrium NNP and multiplier

In the real economy, NNP, income and employment are rarely in a state of stable equilibrium, but are characterized by periods of growth and cyclical fluctuations. The main factor influencing the dynamics of NNP is fluctuations in investment. In this case, a change in investment affects the change in NNP in a multiplied proportion. This result is called the multiplier effect.

Multiplier = Change in real NNP / Initial change in expenditure

Or, rearranging the equation, we can say that:

Change in NNP = Multiplier * Initial change in investment.

Three points should be made from the outset:

• The "initial change in spending" is usually caused by shifts in investment spending for the simple reason that investment appears to be the most volatile component of total spending. But it should be emphasized that changes in consumption, government purchases or exports are also subject to the multiplier effect.
• An "initial change in expenditure" means a movement up or down in the total expenditure schedule due to a downward or upward shift in one of the components of the schedule.
• From the second remark it follows that the multiplier is a double-edged sword that acts in both directions, i.e. a slight increase in spending can result in a multiple increase in NNP; on the other hand, a small reduction in spending can lead through the multiplier to a significant decrease in NNP.

To determine the value of the multiplier, the marginal propensity to save and the marginal propensity to consume are used.

Multiplier = or =

The meaning of the multiplier is as follows. A relatively small change in the investment plans of entrepreneurs or the savings plans of households can cause much larger changes in the equilibrium level of NNP. The multiplier amplifies fluctuations in business activity caused by changes in spending.

Note that the larger (less) the multiplier will be. For example, if - 3/4 and, accordingly, the multiplier - 4, then a decrease in planned investments in the amount of 10 billion rubles. will entail a decrease in the equilibrium level of NNP by 40 billion rubles. But if it is only 2/3, and the multiplier is 3, then the reduction in investment is the same 10 billion rubles. will lead to a drop in NNP by only 30 billion rubles.

The multiplier as presented here is also called the simple multiplier for the sole reason that it is based on a very simple economic model. Expressed as 1/MPS, the simple multiplier reflects only savings withdrawals. As stated above, in reality the sequence of income and expenditure cycles may be dampened due to withdrawals in the form of taxes and imports, i.e. In addition to the leakage to savings, one part of the income in each cycle will be withdrawn in the form of additional taxes, and the other part will be used to purchase additional goods abroad. Taking these additional exceptions into account, the formula for the 1/MPS multiplier can be modified by substituting one of the following indicators instead of MPS in the denominator: “the share of changes in income that is not spent on domestic production” or “the share of changes in income that “leaks” or is withdrawn from the income-expenditure stream. A more realistic multiplier, which is obtained taking into account all these withdrawals - savings, taxes and imports, is called a complex multiplier.

Equilibrium output in an open economy

So far, in the aggregate expenditure model we have abstracted from foreign trade and assumed the existence of a closed economy. Let us now remove this assumption, take into account the presence of exports and imports, and the fact that net exports (exports minus imports) can be either positive or negative.

What is the ratio of net exports, i.e. exports minus imports, and total expenditures?

First of all, let's look at exports. Like consumption, investment and government purchases, exports cause growth in domestic output, income and employment. Although goods and services that cost money to produce go overseas, spending by other countries on American goods leads to expanded production, more jobs, and higher incomes. Therefore, exports should be added as a new component to total expenditure. Conversely, when an economy is open to international trade, we must recognize that part of the expenditure earmarked for consumption and investment will go to imports, i.e. for goods and services produced abroad rather than in the United States. Consequently, in order not to inflate the cost of domestic production, the amount of expenditure on consumption and investment must be reduced by the part that goes to imported goods. Thus, when measuring total expenditures on domestically produced goods and services, import expenditures must be subtracted. In short, for a private, non-trading, or closed, economy, total expenditure is , and for a trading, or open, economy, total expenditure is . Recalling that net exports are equal to , we can say that total spending for a private, open economy is equal to
.

3.7. Impact of net exports on NMP

From the very definition of net exports it follows that they can be either positive or negative. Therefore, exports and imports cannot have a neutral effect on equilibrium NNP. What is the real impact of net exports on NNP?

Positive net exports leads to an increase in total expenditures compared to their value in a closed economy and, accordingly, causes an increase in the equilibrium NMP (Fig. 3.7). On the graph, the new point of macroeconomic equilibrium will correspond to the point, which is characterized by an increase in real NNP.

Negative net exports on the contrary, it reduces domestic aggregate expenditure and leads to a decrease in domestic NNP. On the graph there is a new equilibrium point and the corresponding volume of NPP - .

Aggregate demand AD (from the English aggregate demand) is an economic aggregate that sums up the magnitude of individual demands for all final goods and services offered on the product market. In an ideal macroeconomic model, aggregate demand should be equal to the real amount of national output that can be purchased at any price level.

It has two forms: natural material and cost.

The physical form of aggregate demand reflects the need for goods and services. Its structure can be represented by: firstly, certain types of products and services of non-productive consumption, satisfying personal and other non-productive needs; secondly, the totality of all means of production and production services (research and development aimed at improving technology; information serving production; communications, etc.).

Aggregate demand in value terms is the sum of all expenditures on final goods and services produced in the economy. It reflects the relationship between the volume of total output demanded by economic agents: the population, enterprises and the state, and the general price level in the economy.

In the structure of aggregate demand, 4 macroeconomic entities can be distinguished that influence the volume of demand:

1. aggregate household demand – consumer demand (C);
2. firms' demand for investment (I);
3. demand for goods and services from the state (G);
4. net exports (Xn) is the difference between foreigners' demand for domestic goods and domestic demand for imported goods.

To determine the volume of aggregate demand, it is necessary to determine the volume of demand of each of these entities. Household demand dominates the goods market. It accounts for more than half of final aggregate demand. Consumer demand or spending changes slowly, but is relatively stable. Other components of aggregate demand are more dynamic, such as investment demand, and their changes cause fluctuations in economic activity.

From the structure of aggregate demand, the following formula is extracted: AD = C + I + G + Xn.

On the right side it contains the same terms as the formula for the main macroeconomic identity (GNP by expenditure). The difference between them is that AD is the expenses that business entities intend to make, and not the actual expenses that have already been made during the year.

Graphically, the aggregate demand model is represented as a curve with a negative slope, which characterizes the inverse relationship between the volume of purchased real GNP and the price level. In Figure 1, the aggregate demand curve AD shows the quantity of goods and services that consumers are willing to purchase at each possible price level. It gives such combinations of output and the general price level in the economy at which the commodity and money markets are in equilibrium.

Within the framework of macroeconomic analysis, the national market is studied as an organic unity of its components. It cannot be represented as a simple sum of the components of the markets of individual goods, individual industries or regions of the country. This is a qualitatively new formation, which is expressed in superiority over the sum of its constituent elements.

The national market is the entire system of socio-economic relations in the sphere of exchange, in which the sale of goods and services occurs, the determination of the nature of the use of national resources, the formation of information about the state of affairs in industries and spheres of economic life, the adaptation of social production and its structure to the volume and structure social needs in the country.

Supply and demand on the national market

The fundamental elements of the market mechanism are price, supply and demand. Demand shows the readiness of society to purchase goods and services, and supply shows the production of goods and services ready for sale at prevailing prices. At the national market level we are talking about aggregate demand and aggregate supply. However, price cannot be an expression of the component prices of the entire mass of heterogeneous and varied goods. To express it, price indices are used, i.e. price levels as an aggregate expression of the dynamics of the entire set of prices in the country.

Aggregate demand is the demand for the total volume of goods and services that can be sold at the appropriate price level within the national economy.

Aggregate supply is the total quantity of goods and services that are produced in a country and offered for sale at the current price level.

In both cases, the quantity of goods and services requested and offered cannot be understood as their expression in physical form, since they cannot be added or summed up. It is impossible to combine meters of fabric with tons of cast iron, number of machines, kilowatt-hours of energy generated. But all these goods can and should be reduced to a common denominator, which is their value expression.

Aggregate demand and aggregate supply, the price level are attributes of the process of social reproduction of any country. There is not a single economic school that neglects these categories. Attempts to attribute a secondary role to them in the labor theory of value indicate either economic ignorance or scientific quackery. It is enough to mention that K. Marx called supply and demand “social driving forces.”

Functions of supply and demand

Let us briefly look at the functions of aggregate demand and aggregate supply.

1. They serve as a kind of barometer of the proportional, balanced development of the national economy (passive function), since any process in it will immediately appear on the market in a change in the relationship between supply and demand.

2. Having fulfilled the noted passive function, they immediately begin to perform an active function to correct the imbalances that have arisen and, through market prices, set capital in motion, ensuring their flow from one industry to another.

3. They represent two moments of the process of social reproduction - consumption and production, although they do not coincide with them.

4. All socio-economic contradictions in the economic life of society find their expression in them.

Aggregate demand

Let's take a closer look at aggregate demand. Let's turn to Fig. 26.1, which depicts the aggregate demand curve (C C), and the real volume of social production (Q) and the price level (P′) are plotted on the horizontal and vertical axes, respectively.

Rice. 26.1. Aggregate demand curves

The graph clearly shows the inverse relationship between the price level and real production volume: the “negative” slope of the curve. Note that the aggregate demand curve deviates down and to the right, i.e. the same as the demand curve for an individual product, but the reasons for this deviation are different.

When considering a partial market (a market for one product), the negative slope of the curve is predetermined by one independent variable - the price of the product, in which the income effect and the substitution effect appear. For aggregate demand, the situation becomes more complicated, because many variables interact at the national market level. First of all, one cannot assume that income is given. Total income changes. The use of the substitution effect is also unacceptable, since we are not talking about a choice between goods, but about the demand for all goods, which does not allow any “castling” of them.

Among the many factors affecting aggregate demand, it is necessary to distinguish between price and non-price factors.

Price factors of demand

To price factors, i.e. factors that are associated with price dynamics and, therefore, do not change the position of the curve C C should include, first of all, the effects of the interest rate, real cash balances (wealth effect) and import purchases.

The effect of the interest rate is manifested in changes in its level under the influence of price level dynamics, which directly affects consumer spending. If the price level increases (decreases), then interest rates also increase (decreases), and this in turn leads to a decrease (increase) in consumer spending and investment. Why is this happening? If we assume that the volume of money supply in the economy remains unchanged, then when prices rise, the demand for money from both buyers and entrepreneurs increases to cover growing expenses. The consequence of this is an increase in interest rates, which in turn will affect the reduction in spending and aggregate demand.

Another factor that determines the downward trajectory of the aggregate demand curve is the wealth effect, which manifests itself in the fact that as the price level rises, the purchasing power of accumulated financial assets, time deposits, and bonds decreases. This forces their owners to cut their expenses. Conversely, when the price level decreases, the purchasing power of assets increases, and spending, and therefore aggregate demand, increases.

Finally, the effect of import purchases is associated with the ratio of prices at home and abroad. An increase in the price level in the country will cause an increase in imports and a decrease in exports, which will predetermine a reduction in the balance of foreign trade in the country's aggregate demand and a fall in demand for domestic goods and services. Conversely, a decrease in the price level in the country contributes to an increase in the balance of foreign trade and demand for domestic goods and services.

Changes in the price level lead to changes in the level of costs of consumers within the country, enterprises, government, foreign buyers and, accordingly, to fluctuations in demand for real production volume. These changes are provoked by prices, and the aggregate demand curve on the graph remains in the same position.

Non-price demand factors

A change in one or more “other conditions” causes a shift in the aggregate demand curve. Such conditions represent non-price factors of aggregate demand.

Non-price factors include changes in consumer, investment, government spending and costs associated with foreign trade activities. Changes in consumer spending depend on consumer wealth, expectations and debt, and the level of taxation, which affects the amount of disposable income. It must be remembered that these are changes in consumer spending that are in no way related to a decrease or increase in the price level.

Other non-price factors are changes in investment spending, which are determined by the level of interest rates, the expected level of future profits from investment, taxes on enterprises, the level of their technical equipment and the extent of excess production capacity. In this case, we are talking about the dynamics of demand for goods and services for production purposes, for means of production. The dominant role here is played by the business sector with its demands for investment goods.

When considering the interest rate, it is necessary to take into account only those changes in it that are not associated with the effect of the interest rate already discussed above as a consequence of changes in the price level. Therefore, an increase or decrease in the interest rate caused by any factor other than a change in the price level leads to a decrease or increase in investment spending and aggregate demand.

As income levels rise in foreign countries, the demand for domestic and imported goods increases. Therefore, increasing the level of national income of our trading partners increases our export opportunities. A decrease in national income abroad has the opposite effect. In the first case, the aggregate demand curve shifts to the right, in the second - to the left.

Changes in the exchange rate of the ruble against other currencies are another factor affecting the balance of foreign trade and aggregate demand. When the ruble depreciates, its price in dollars falls. This means that the dollar exchange rate is rising. As a result of the new relationship between the two national currencies, American consumers will be able to get more rubles for a given amount of dollars, while consumers in Russia will receive fewer dollars for each ruble. As a result, for American consumers, Russian goods will become cheaper than domestic ones, and for consumers in Russia, American goods will become more expensive. This should help increase our foreign trade balance, which in turn will lead to an increase in aggregate demand in Russia.

Before moving on to the consideration of the aggregate supply curve (APC), let us once again pay attention to the aggregate demand curve (ACC), which expresses the possible relationship between variables. To determine the price level and production volume, it is necessary to construct an aggregate supply curve (APC), which also shows only the relationship between the price level and production volume. And only the combination of curves C C and P C in one figure makes it possible to determine the general national price level and the so-called equilibrium volume of national production (product).

Aggregate offer

Rice. 26.2. Aggregate demand curve

The aggregate supply is shown in Fig. 26.2 curve P S, which shows the correspondence of one or another level of real volume of domestic production to each of the possible price levels. Higher price levels maintain incentives to produce more goods and offer them for sale. Lower price levels cause a reduction in production and supply of goods. The relationship between the price level and the volume of the national (domestic) product is direct (“positive”).

The P C curve reflects the change in costs per unit of output with an increase or decrease in the volume of national production. Costs per unit of output can be calculated, of course, only conditionally, by dividing the cost of the total resources used by the cost of the volume of national production. In other words, the cost per unit of output at a given level of output will represent the national average cost.

Supply in the short term

The horizontal segment of the P C curve characterizes the state of national production in the short term, when prices for many goods are inflexible. This is due, firstly, to the dissemination of information about list prices for the near future. Secondly, it is assumed that there are unused human and material resources, i.e. labor and capital. The availability of resources indicates that it is possible to expand production at the established price level without putting any pressure on them. If during this period the volume of the national product begins to increase, then neither shortages nor “bottlenecks” in production causing an increase in prices arise. Entrepreneurs can purchase labor and other resources at fixed prices, which allows them to keep production costs at the same level and, therefore, not increase prices for goods. If real production begins to decline, then prices for goods and resources will remain at the same level. This means that while real national output declines, commodity prices and wages will remain unchanged.

The horizontal segment of the P C curve is called Keynesian - named after the famous English economist J.M. Keynes, who for the first time against the backdrop of the “great depression” of the 30s. proved the possibility and necessity of expanding social production while keeping the price level constant

resources and manufactured products. Additionally, Keynes argued that falling prices and wages did not alleviate the decline in real output and employment.

However, let us return again to the P C curve and assume that in order to achieve the maximum volume of national production, significant previously unused resources were used at fixed prices on the horizontal segment of this curve. Further increase in national production is possible only if additional available free resources are attracted, which have a lower degree of return, productivity, and efficiency. This will cause an increase in production costs, which will certainly require an increase in the price level so that the use of these resources is profitable.

Supply in the medium term

It is also necessary to take into account the fact that the national market includes many markets for goods and resources, and full employment is formed non-simultaneously and far unevenly. This can create deficits and other “bottlenecks” in social production, which often have to be “solved” through additional costs and efforts. At the same time, the rise in prices to a new higher level opens up the possibility of using less and less efficient resources, which will clearly lead to a decrease in the national economic level of profitability of social production. Therefore, in the intermediate segment of the P C curve, an increase in real domestic (national) product in the medium term is accompanied by an increase in prices.

Long-term supply

Finally, we have reached the point where all available resources are fully utilized and the workforce is at full employment. Consequently, further expansion of social production is impossible due to the fact that the limited resources available have been exhausted. This position of the national economy from the aggregate supply side in Fig. 26.2 is characterized by the vertical segment of the PS curve in the long term. This means that national production and aggregate supply have become fixed and do not depend on the price level.

The vertical segment of the P C curve corresponds to the views of the classical economic school and its followers - the neoclassicals, from the point of view of which the market economy has sufficient internal self-regulation mechanisms to ensure constant full employment. Consequently, this segment of the P C curve symbolizes the complete independence of aggregate supply from the price level and aggregate demand and complete predetermination from the technical and production capabilities of the national economy.

However, the proposed logic of changes in the conditions of social production in the process of transition from the short-term period (horizontal segment) to the medium-term (intermediate segment) and then to the long-term period (vertical segment) indicates, to one degree or another, the functional dependence of aggregate supply on the price level at the immutability of all other circumstances and factors.

Non-price supply factors

The entire set of factors influencing changes in aggregate supply relates to non-price factors and, therefore, causes a shift in the P C curve. This shift indicates changes in production costs per unit of national product. At the same time, an increase in production costs per unit of product causes a shift of the P C curve to the right, and their reduction to the left.

The most significant non-price factors of aggregate supply include changes in prices for resources, changes in their productivity, and in legal regulations.

As for changes in the domestic resources available to society, an increase in their supply entails a reduction in production costs and, accordingly, an increase in the volume of the national product. Conversely, their reduction causes a reduction in the supply of resources and an increase in their prices, which affects the decrease in the volume of national production. Therefore, in the first case, the PS curve shifts to the right, and in the second case, to the left. If a country uses imported resources, then the latter, through the level of prices for them, have the same impact on aggregate supply as the dynamics of prices for domestic resources. However, in this case it is necessary to make an adjustment for the ruble exchange rate. If it falls, then prices for imported resources for domestic producers will increase. This will cause an increase in production costs - the P C curve will shift to the left.

As you know, the main resources (factors) of production are labor, capital and land. Labor has the most significant impact on national production, since it accounts for 3/4 of all costs for the production of the national product. Therefore, the state of the labor market and the price level on it largely depend on the social costs of production and the possibility of increasing the volume of social production.

The impact of capital on aggregate supply is determined by the level of savings, the scale of capital accumulation, its technological and reproductive structure and qualitative condition. Increased savings and capital formation provide favorable conditions for investment, production growth and aggregate supply. The qualitative state of capital is characterized by the level of advanced equipment and technologies used in social production.

Another situation arises if one of the non-price factors changes, causing an increase in aggregate supply and a shift of the P C curve to the right. In Fig. 26.5 shows that the shift of the P C curve to the P C position indicates an increase in the real volume of national production from Q K to Q M, which is accompanied by a simultaneous decrease in the price level from C K to C M.

The shift of the P c curve to the right indicates economic growth, an increase in the real volume of national production and employment.

conclusions

1. The national market is a system of socio-economic relations mediated by exchange within the national economy of the country. It is characterized by aggregate demand and aggregate supply. Aggregate demand represents the demand in a country for the entire mass of goods and services at the appropriate price level. Aggregate supply is the entire mass of goods and services that can be offered for sale at the current price level.

2. Aggregate demand and aggregate supply perform the function of identifying imbalances in social production, since the latter will immediately affect the change in the relationship between them on the market, and this will certainly set capital and other resources in motion.

3. The specificity of aggregate demand lies in the simultaneous demand for all goods, which does not allow for either constant income or the manifestation of substitution effects, and this complicates the analysis. Price factors that influence aggregate demand include the effects of interest rates, real cash balances (wealth effect), and import purchases. Non-price factors of aggregate demand include changes in consumer, investment, government spending, as well as expenses related to foreign trade activities.

4. There are three points of view regarding aggregate supply: it does not depend on the price level; is directly dependent on the price level; the price level remains unchanged when aggregate demand increases or decreases. Therefore, the graph of the aggregate demand curve has three sections: vertical, flowing into a smooth curve of a positive slope, which transforms into a horizontal line. The most significant non-price factors influencing aggregate supply include changes in prices for resources and their productivity, the level of interest rates, as well as legal norms regulating economic activity.

5. An increase in aggregate demand has a different impact on aggregate supply: on the Keynesian segment of the supply curve it increases by the same amount, on the intermediate segment - supply increases to a lesser extent due to an increase in the price level; in the classic segment, there are no changes in aggregate supply, since all resources are used, but the price level increases sharply.

Aggregate demand is the sum of all consumer spending on goods and services produced in the economy.

This indicator includes the following components:

Demand for consumer services and goods;

And goods that are supplied by the state;

Demand for investment products;

Demand for export goods is the difference between the quantity of goods purchased by foreigners and that purchased by domestic consumers.

Let's take a closer look at what aggregate demand is and the factors that determine it. Primarily, price factors influence the quantity of products consumed.

1. Interest rate effect - prices influence output through the interest rate. on goods leads to people trying to increase their cash flows. That is, it increases. But if they do not grow in accordance with expectations, then the amount of consumer spending and investment decreases.
2. The cash balance or wealth effect primarily affects consumer spending. For example, as prices rise, money decreases and gradually depreciates. The accumulated financial assets of the population, in particular, bonds, fixed-term accounts, etc., are worth significantly lower than initially. People end up poorer even by keeping money at home.
3. The effect of import purchases affects the amount of exports. As prices increase, demand for foreign goods increases and demand for domestic goods decreases.

But consumer expenses depend not only on the cost of products and services. Non-price factors of aggregate demand are diverse. They are divided into groups according to which elements they affect.

1. Factors influencing the volume of product consumption by households.

Consumer Wealth - People spend their money based on the value of the assets they own (real estate, bonds, stocks). So a sharp reduction in their prices leads to people starting to spend less and save more.

Consumer expectations depend on people's forecasts. If they believe that there will be an increase in the near future, then the aggregate demand for all goods increases. And, accordingly, on the contrary, the expectation of a crisis in the economy leads to people starting to accumulate savings.

Buyers' debt - if people have a large number of loans, installments for previous purchases, then aggregate demand decreases sharply.

Taxation - lowering the income tax rate results in people having more money to buy goods.

2. Non-price factors that cause changes in investment costs.

Interest rates - when they increase, investment costs decrease. For example, consider a decrease in volume. When exposed to this factor, contributions increase and decrease.

Expected returns on investment - aggregate demand increases with optimistic forecasts.

Taxes levied on businesses - as they increase, the amount that firms and their workers are willing to spend decreases.

Technologies in production - any innovations contribute to the fact that the company is ready to invest more money.

3. Factors associated with changes in government spending. If the government orders the purchase of national products, this will increase the aggregate demand in the country.

4. Non-price factors that lead to changes in net export purchases.

National income in foreign countries - with its increase, there is a possibility that the demand in this country will increase for export products.

Exchange rates influence consumer choice. People decide what goods to buy: imported or domestic.

Thus, aggregate demand is constantly influenced by a large number of factors.

Aggregate demand and its determining factors

Total (aggregated) demand (AD) - the real amount of gross domestic product that consumers are willing to purchase at any given price level, or the sum of all expenditures on final goods and services produced in the economy.

The main sectors of the economy correspond to four macroeconomic entities that are buyers in the national market of goods:

• Households that account for more than half of final aggregate demand and form consumer demand (C) .
• Entrepreneurs (firms) creating demand for investment - investment demand (I) .
• A state that purchases products manufactured in the private sector to produce public goods and generate public investment through government spending - government demand (G) .
• The foreign sector, which depends on the ratio of prices for domestic and foreign goods and on the exchange rate of national currencies. The sector creates demand for net exports (Xn) , equal to the difference between exports and imports, that is, the difference between foreigners’ demand for domestic goods and domestic demand for foreign goods.

Thus, aggregate demand (AD) can be found as the sum (combination) of the demands of all macroeconomic agents using the formula:
AD = C + I + G + Xn

Aggregate demand curve

Graphically, the aggregate demand curve looks similar to the usual one demand curve , only this curve is constructed in a different coordinate system. The values ​​of real production volume (real GDP) are plotted on the x-axis, and the general price level in the country (P) is plotted on the y-axis. It is also convex with respect to the origin of the coordinate system and is characterized by an inverse relationship between the amount of aggregate demand AD and the price level P.

There are two large groups of factors that have a huge impact on aggregate demand: price factors and non-price factors.

Let's call price factors , inextricably linked with pricing dynamics.

1. Price of market goods and services is the starting point for the buyer’s choice. Any consumer always focuses on the system of relative prices and, with the same quality, will choose a cheaper product, and with the same price, a better one.

2. Wealth effect (Pigou effect) . When prices rise, the population's assets decrease by a certain amount (due to inflation), and, as a result, aggregate demand also falls. Otherwise, as prices fall, aggregate demand increases. In other words, with a constant amount of income and a decreasing cost of market goods, the purchasing power of the subject increases: for the same amount of money he can purchase a larger set of goods and services, and accordingly he feels somewhat richer.

3. Interest rate effect (Keynes effect) . The interest rate is the fee for using borrowed funds. An increase in prices in the economy, with a constant value of the money supply in circulation, leads to an increase in the demand for money. This means that the price of money - the interest rate - increases. As a result, the consumer and investment components of aggregate demand decrease - due to the high interest rate, business investment activity falls. On the other hand, a high interest rate is an incentive for the population to save more, which is only possible by reducing consumer spending.

4. Effect of import purchases (Mundell-Fleming effect) . Imports and exports are important components of aggregate demand. The volumes of exports and imports depend on the ratio of prices within the country and abroad. The effect of import purchases is that if the domestic price level increases, then domestic consumers will purchase more imported and fewer domestic goods, and foreign consumers will reduce their purchases of goods produced in the country. At the same time, there is a reduction in exports, accompanied by an increase in imports. As net exports fall, aggregate demand will fall as a result.

Non-price factors . These typically include the availability and prices of substitute goods, economic and inflationary expectations of consumers, as well as fashion and taste preferences. Within macroeconomics, the main non-price factors are the volume of money supply, or money supply in the economy, and the velocity of its circulation. The more money is in the hands of the population, in circulation, the higher the purchasing power, as a result of which prices for goods and services begin to rise, which causes a reduction in overall demand.