ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos


Econ Videos 79 videos

Econ: What is a Production Possibilities Curve?
10 Views

What is a Production Possibilities Curve? The Production Possibilities Frontier Curve (PPF) is a statistical graphic curve that depicts the compari...

Econ: What are Income and Substitution Effects?
8 Views

What are Income and Substitution Effects? Income effects reflects the increases or decreases in total consumption of goods and services in proporti...

Econ: How Do Companies Add Value?
1 Views

How Do Companies Add Value? Companies add value by improving the client or customer experience. This can be achieved by offering better quality ser...

See All

Econ: What is Aggregate Demand v. Aggregate Supply? 13 Views


Share It!


Description:

What is Aggregate Demand v. Aggregate Supply? Aggregate Demand refers to the total amount of demand for goods and services in a particular economy at a particular price over a specified time frame. Aggregate Supply refers to total supply in the same economy at the same price and time frame. The statistical relationship between the two is usually viewed in graphic form, especially since aggregate supply usually lags behind aggregate demand. Shifting of the chart in the ability to correlate the two is contingent on how soon supply catches up with demand, which can take days, weeks or months.

Language:
English Language

Transcript

00:00

And finance Allah Shmoop What is aggregate demand versus aggregate

00:06

supply We're assuming you all know about supply and demand

00:12

Really Nothing The fundamental concepts of economics Anyone crickets were

00:17

not mad We're just disappointed in you But we'll go

00:20

over It quickly supplies the amount of something There is

00:23

like I'll imagine a warehouse one filled with Roquefort cheese

00:27

Row after row of shelves filled with you know pungently

00:31

stinky Roque for cheese that people want to eat voluntarily

00:34

so that supplies fly cheese All right Now demand out

00:37

there mostly in France and in small pockets throughout the

00:40

rest of the cheese eating world There are people who

00:42

love Roque for cheese They just want to stick its

00:46

moldy tang right into their mouths And actually like tasting

00:49

That's the demand People want the cheese right now to

00:52

aggregate supply and aggregate demand Well aggregate here just means

00:57

total Like in everything in all the world all the

01:00

demand added up and that equals aggregate demand All right

01:04

and all the supply added up and all that stuff

01:06

you have that equals aggregates supply Well these two terms

01:09

come up when you talk about an economy as a

01:11

whole Aggregate demand is that man for all goods and

01:14

services available in an economy All the cheese yes but

01:18

also all the haircuts the overrides the sushi dinners the

01:21

massages and fancy colorful drinks with little umbrellas in them

01:24

at all that up in a whole lot more That's

01:26

aggregate demand and also all the cars and appliances and

01:30

pianos and air conditioners and electricity and gasoline and furniture

01:32

And Kato diet shakes those everything Meanwhile you have aggregate

01:36

supply Well that's a total supply of all these goods

01:38

and services that an economy supplies all the output of

01:41

the makers or providers of haircuts and sushi dinners and

01:45

massages and fancy drinks as well as all the other

01:47

stuff that gets made in an economy will aggregate demand

01:50

can be affected by a few items and it's a

01:52

huge number so tiny little one percent d kind of

01:55

effects are still huge numbers All right so what affects

01:58

it Well one is the value of money so changes

02:01

in inflation expectations can either encourage people to buy more

02:05

stuff or encourage them to sock away money for the

02:08

future If people think inflation is going to be high

02:10

in the future well people may run out today and

02:13

buy stuff before prices go up This would increase aggregate

02:17

demand right If they're confident they're currency will hold its

02:21

value in the future People will be more likely to

02:23

save or invest their money well This a lower aggregate

02:27

demand as people put off purchases until later Will interest

02:30

rates play a role as well Here low interest rates

02:33

make borrowing and thus buying easier Low interest rates Allow

02:37

people to buy more big ticket stuff you know like

02:40

cars or houses or yachts On the other side of

02:43

the world there are some things that traditionally impact aggregates

02:46

Supply supply shocks can temporarily impact aggregates supply like of

02:50

a hurricane wipes out a major oil refinery or coal

02:53

area Or if a herd of elephants runs rampant in

02:56

the country's strategic peanut reserve Or there's a zombie apocalypse

03:00

leading workers to exit the region So the cost of

03:04

labor then goes up right because when your toilets overflowing

03:07

you don't care what your pain for that plumbing Or

03:09

there's a rare goat disease that cuts into cheese production

03:14

you know or at least adds to production costs So

03:16

now all of a sudden there's less supply of cheap

03:19

goat cheese There's only the expensive greenhouse grown goat cheese

03:23

and still the same amount of demand So supplies your

03:25

last and then and then costs go up right It's

03:27

also productivity gains from technology can impact aggregate demand That's

03:32

another factor here of force As the economy gets better

03:34

it producing things it can make more stuff from the

03:38

same supply or same amount of resource is so of

03:41

robots could suddenly make muffins for five cents each instead

03:45

of the twelve cents each it cost When humans make

03:47

him well then aggregate demand for muffins would probably go

03:51

up because they suddenly got a whole lot cheaper Thank

03:54

you Mr Robot Danger Danger What does that mean from

03:57

an investment side Well if companies invest less because of

04:01

negative expectations higher taxes or higher borrowing costs well then

04:06

everything shifts to the left meaning it cools down There's

04:10

less volume being traded around less supply less demand because

04:14

the higher borrowing costs have added friction to the process

04:17

And usually governments do that when they're afraid of high

04:20

inflation spiraling out of control and they raise the central

04:23

bank rates around the world or the Fed in the

04:26

U S so remember again the very small changes and

04:28

things like borrowing costs just a half a percent or

04:31

something on fifty trillion dollars Sloshing around out there have

04:34

enormous effects on the marginal supply and marginal demand volumes

04:39

that you know get put through the system You know

04:41

I think about a drainpipe in a heavy rainstorm that's

04:43

totally full of rain and suddenly that big pipe contracts

04:46

happen inch in diameter Well bad things happen to the

04:50

other end So back to our mad goat disease Well

04:53

if robots find a way to mold cheese more efficiently

04:56

and make it cheaper by the pound while there's going

04:58

to be more rope for to go around and then

05:00

think about all of this applied to globally lower interest

05:04

rates like even the difference of one percent globally in

05:07

a desa trillion dollar economy one percent All that borrowing

05:11

is a massive number So if they lower interest rates

05:13

you'll be able to borrow more money to be able

05:15

to buy all the high end stinky cheese when you

05:17

could get your hands on So yeah I think about

05:19

aggregate demand aggregate supply their huge numbers across the whole

05:23

global economy So very small things still affect a ton 00:05:27.77 --> [endTime] of people a lot Yeah

Related Videos

GED Social Studies 1.1 Civics and Government
39794 Views

GED Social Studies 1.1 Civics and Government

Fake News
11938 Views

How do you tell fake news from real news?

Finance: What is Bankruptcy?
260 Views

What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...

Finance: What is a Dividend?
1777 Views

What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...

Finance: How Are Risks and Rewards Related?
589 Views

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...