The forces of aggregate demand and supply determine

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Unformatted text preview: ds and services are determined by the forces of aggregate demand and aggregate supply. The forces of aggregate demand and supply determine the equilibrium price level and equilibrium quantity of goods and services (equilibrium output) in an economy. The equilibrium price level (PE in Exhibit 11-10) and the equilibrium quantity of goods and services, or output (QE in Exhibit 11 (286-309) EMC Chap 11 12/5/05 3:22 PM Page 305 Equilibrium in an economy comes about through the economic forces of aggregate demand (AD) and aggregate supply (AS). The economy is in equilibrium at point A in the exhibit. 11-10), come to exist over time. For example, at P1 the quantity demanded of goods and services (Q1) is less than the quantity supplied of goods and services (Q2), resulting in a surplus of goods and services. As a result, the price level drops. At a lower price level, people buy more goods and services, and producers produce less. The surplus begins to disappear because of these actions on the part of buyers and sellers. (Buyers are helping to eliminate the surplus by...
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This document was uploaded on 01/16/2014.

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