Aggregate demand and supply determine macroeconomic outcomes from "summary" of Principles of Macroeconomics by N. Gregory Mankiw
Aggregate demand and supply are two crucial concepts in macroeconomics that play a significant role in determining overall economic outcomes. Aggregate demand refers to the total amount of goods and services that households, businesses, and the government are willing and able to buy at a given price level. On the other hand, aggregate supply represents the total amount of goods and services that producers in an economy are willing and able to supply at a given price level.
The interaction between aggregate demand and aggregate supply ultimately determines the equilibrium level of output and price level in an economy. When aggregate demand exceeds aggregate supply, it leads to an increase in the price level as businesses raise prices to meet the higher demand. This scenario is known as demand-pull inflation, where inflation is driven by excess demand in the economy.
Conversely, when aggregate supply exceeds aggregate demand, it results in a decrease in the price level a...
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