Macroeconomic policy pursues the following goals: economic growth, optimality of the foreign trade balance, increasing employment, reducing inflation, and also striving to establish a balance of supply and demand.
The situation on the market is unstable and financial specialists are constantly on the alert so that the company can respond to changes on time. Aggregate demand and aggregate supply are necessarily studied. The first indicator is the volume of production of domestic producers, which the government, enterprises and consumers will be able to buy at different price levels.
An important factor affecting aggregate demand and aggregate supply is the cost of production. If the price level for domestic products rises, then the costs of buyers are sharply reduced. With a decrease in the cost of goods, more people begin to acquire them. Thus, there is a relationship between value and demand that is negative or inverse. This relationship can be displayed on the chart. The demand curve shows the changing income of consumers. When the price level rises, then we move up the curve. But do not think at the same time that the country's total nominal income is reduced, because the money circulates in a circle. They will return again to consumers, the state in the form of wages, taxes, rent, etc.
Aggregate demand and aggregate supply also depend on non-price factors. Consider what affects purchasing power:
1) The effect of wealth. Many people keep their savings in assets (time deposits, stocks, bonds, etc.), they have a certain nominal value. If a price increase occurs , then the assets begin to depreciate. As a result, the country's population is becoming poorer.
2) Changes in consumer spending on products related to increased debt, market expectations, taxes and welfare.
3) Investment costs. They include such components as interest rates, corporate taxes, excess capacity, technology, expected profits.
4) Government spending. This market entity is one of the largest buyers. If the state allocates funds for certain purchases, then aggregate demand is growing.
5) Costs of net exports. It takes into account: exchange rates, national income in foreign countries.
The line of aggregate demand moves to the right when the population’s expenditures on the purchase of products increase. This happens when the quality of life changes: an increase in wages, deflation, an increase in money in circulation, etc. The following factors have an inverse effect: higher taxes, higher prices, a tendency to save, etc.
The aggregate supply is the volume of production at each price level. With a higher cost of products, organizations are more trying to increase the output of goods than at low. The relationship between aggregate supply and price level is positive or direct. The curve on the graph is presented in the form of three segments:
1) horizontal;
2) deviating up;
3) vertical.
Price factors show the movement of aggregate supply along the line.
Non-price factors are numerous:
1) The cost of resources.
2) Legal regulations.
3) Level of performance.
The increase in aggregate supply is caused by the following factors: rising prices, reducing production costs, improving technologies. The aggregate supply curve begins to move to the right when labor productivity rises. When demand begins to increase at a faster rate than production volumes, money depreciates. Aggregate demand and aggregate supply are constantly interconnected.