Summary
From microeconomics we know that firms have supply curves for goods and
services. But what happens when we try to get a picture of the supply
of goods and services for the entire economy? While this task may at
first seem daunting, there is a relatively simple way to perform it by
using the aggregate supply curve. The aggregate supply curve
represents the total supply of goods and services in an economy. By
defining the aggregate supply curve in terms of the price level and
output or income, we can analyze the effects of other
variables, such as the interest rate, on aggregate supply.
This second part of this SparkNote will contain a discussion of modeling the macroeconomy. In previous
macro SparkNotes, we learned about macroeconomic phenomena like fiscal policy, monetary policy, and
unemployment, to name a few. We also saw how these phenomena affect the money market, output, and
interest rates. The next step is to evaluate the effects of phenomena
on the entire macroeconomic picture.
Aggregate supply and aggregate demand model the
effects of economic changes on the economy as a whole. By utilizing
the information we'll learn about the aggregate supply curve and about
the aggregate demand curve, we can determine the effects of economic
policies on the macroeconomy.
