For my economics class i have to make an AD/AS diagram of the current economy. How would I do that?

Question

They have us use various articles to come up with the information, but I'm having trouble finding potential GDP and the aggregate demand and supply curves online. If anyone has any help, it would be most appreciated

Answer 1

In economics, aggregate demand is the total demand for final goods and services in the economy (Y) at a given time and price level. This is the demand for the gross domestic product of a country when inventory levels are static. It is often called effective demand or abbreviated as 'AD'. In a general aggregate supply-demand chart, the aggregate demand curve (AD) slopes downward (indicating that higher outputs are demanded at lower price levels).

In economics, the equation of aggregate demand with expenditure on GDP or GNP is rejected as false, on conceptual and statistical grounds.

Firstly, GDP as a measure of value added excludes purchases of all intermediate goods used up in production. Even so, gross value added cannot be simply equated with final demand, insofar as it excludes transfers and most trade in second-hand items.

Secondly, Gross Output from which GDP is derived by deducting intermediate expenditures, encompasses only those flows of income or expenditure regarded as related to production. Property income in the form of certain types of interest, transfers, land rents and realised capital gains from asset sales are excluded from gross output and GDP. Therefore, if the amount of property income (or transfers) increases, although GDP remains constant, national income receipts can nevertheless increase, and consequently aggregate demand can also increase.

Thirdly, Gross fixed capital formation measures only investment in productive fixed assets and does not constitute total investment, which includes also purchases of financial assets.

Fourthly, GDP in principle excludes sales of second-hand assets except for those modified by some prior productive activity (e.g. reconditioned cars).

Finally, expenditure on GDP obviously disregards the creation of credit money by banks and governments, which boosts aggregate demand.

Thus, it is argued, the catch-all Keynesian notion of aggregate demand:

    * obscures the distribution of income between social classes with different propensities to save, consume and invest, and

    * fails to differentiate appropriately between different kinds of investment and consumption expenditure.

Restraining consumption and a higher savings rate does not automatically imply more investment, and lower investment does not automatically mean higher consumption expenditure. Funds may (as Keynes himself acknowledges) be hoarded.