Aggregate Demand/Supply and Full Employment Level in Term Paper

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Aggregate Demand/Supply and Full Employment

Employment level in any country is dependent upon important economic factors or elements including production, demand, supply, consumption, inflation etc. Employment can never be increased or decreased without it producing some effect on these economic factors. In their words, changes in these factors are what lead to increase or decrease in employment level. For example in any country we cannot expect to increase employment level without taking into account production of goods and services, demand for those goods and supply of the same.

When employment level in the country is low and the government wants to achieve full employment, it is important to study the economic factors of aggregate demand and supply as they play the most crucial role in determining the level of employment in a country. Aggregate demand is the sum total of demand for goods and services in a country. In any country, there exist more than one source of demand. It is not the general public that seeks goods and services but the government and international buyers are also important sources of demand because they affect production level in a country.

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In other words aggregate demand is defined as "the total level of demand in the economy. It is the total of all desired expenditure at any time by all groups in the economy. The main groups who spend are consumers (consumption), firms (who spend on investment), government (government expenditure) and overseas (exports). Total aggregate demand is therefore:

AD = C + I + G + (X-M) where consumption expenditure investment expenditure government expenditure

M) = net exports (exports - imports)" (Economics Glossary: Reference 1)

Aggregate demand and aggregate supply are distinct but interrelated concepts. Aggregate supply is the sum total of supply of goods or service at various price and demand levels in a country. When demand for some good increases, supply is usually increased or else inflation is likely to set in. To avoid excessive inflation, production is increased to meet the new demand level in the country. Aggregate supply is thus "the total….....

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