Gwartney Et Al Belhaven University Management Of
Instructions: There are 2 responses. Write a 100 word response for each one.
Response 1:) Ora
The aggregate goods and services market are apart of the four key markets that coordinate the flow of income. This basically includes the businesses supply goods and services in exchange for sales revenue. Also with households, investors, governments, and foreigners (net exports) demand goods. When dealing with the circular flow diagram, the goods and services market coordinates the demand for and supply of domestic production. (GDP). The aggregate demand curve slopes downward to the right, indicating an inverse relationship between the amount of goods and services demanded and the price level. Aggregate demand is the total expenditure of a company, which includes consumer consumption, investments, government spending, and net exports. The aggregate demand curve is a downward sloping curve, indicating that when the price level increases the total spending of an economy decreases.
Supply and demand is a relationship between the quantity of a commodity that producers wish to sell at various prices (Links to an external site.) and the quantity that consumers wish to buy. It is the main model of price (Links to an external site.) determination used in economic theory. Supply and demand explain what determines the output and price of a particular product. A demand curve shows the relationship between quantity demanded and price in a given market on a graph. A supply curve shows the relationship between quantity supplied and price on a graph. The law of supply says that a higher price typically leads to a higher quantity supplied. A demand curve is almost always downward-sloping, reflecting the willingness of consumers to purchase more of the commodity at lower price levels. A supply curve is usually upward-sloping, reflecting the willingness of producers to sell more of the commodity they produce in a market with higher prices.
Gwartney,J.D., Stroup,R.L., Sobel,R.S., & Macpherson,D.A. (2018).Economics: Private and public choice(16th ed.). Boston, MA: Cengage Learning.
The Editors of Encyclopaedia Britannica. Supply and demand. https://www.britannica.com/topic/supply-and-demand (Links to an external site.)
Response 2: ) Brent
When the economy is in a recession, there is a self-correcting mechanism that can bring the market back to equilibrium. The mechanism is debatable due to the uncertainty of how long it will take for the market to adjust. When the economy is in a recession, the short-run aggregate supply shifts left, and prices increase. The increase in prices drives up the cost of production which in turn decreases supply. When this happens, there is a general down-turn in the economy, or recession, meaning that purchasing power decreases due to higher costs and lower supply. When output lowers, firms must lay off workers, especially higher paid employees who have larger benefit packages. Unemployment will then increase above the natural unemployment rate. The correction mechanism then starts. As firms no longer must pay for higher wages and output slows, the cost of resources begins to lower. Firms now have capital to purchase cheaper resources and hire workers at lower wages (Gwartney et al., 2018). With cheaper resources and labor, firms can increase production, purchase more resources, and even borrow money. As short-run aggregate supply increases, the short-run aggregate supply curve will shift back to the right and bring the economy back to equilibrium. At this point, unemployment should again equal the natural unemployment rate and the economy should be out of the recession. The downside to the self-correcting mechanism is that of time. The correction could take a few quarters or longer than a year. Because of the uncertainty of time, government will often intervene and inject money into the economy to influence increase spending and thus supply and demand as well.
Resources
Gwartney, J. D., Stroup, R. L., Sobel, R. S., & Macpherson, D. A. (2018). Economics: Private and public choice (16th ed.). Boston, MA: Cengage Learning.