Macro Economy Essay

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Recommended: Economic growth, inflation and unemployment

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An economy is a robust set of inter-related production and consumption activities that assist in the determination of the scarcity and surplus of goods and services. For instance, when there is an overproduction and the demand for the goods is low, economist refers this to as a surplus in the goods. However, if the need for the same products is higher than the production, then this is termed as a scarcity of the goods. In some cases the supply and demand of goods and service may be the same; this is referred to as the state of equilibrium. The economy has two categories, and they are the macro economy and the micro economy. Macro economy is a field that studies the behavior of the cumulative …show more content…

The aggregate supply is commonly expressed as short-term or long, where the short term is over a short period while long-term measures a relatively extended period. Nonetheless, there are some changes in the economy that may result in the modification of the aggregate supply. They are supply shocks, change in the anticipated inflation and also change in the prices of input. Supply shocks are sudden events that result in the either increase or a decrease in output for a short period. With aggregate demand, the curve used to monitor it is downward sloping, and it indicates that as the prices of goods and services decreases, more of the goods will be required. However, various factors can yield in the change of the aggregate supply, and they include changes in the interest rates of finance institutes, wealth effect and also change in foreigners’ income. For instance, with the change in foreigners’ income, if the foreigners’ income increases, the domestic aggregate demand for goods and services produced locally will increase. A Recessionary Gap is a state where the real gross domestic product is lower than the future gross domestic product when the economy is in full employment level. Inflationary gap, however, is a situation that defines the space between the current levels of the real gross domestic product at full

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