Aggregate demand and aggregate supply

Explain what an economy's aggregate demand is and name its four components, giving an example of each.

Aggregate demand has four components: household consumption, firms' investment, public spending and net exports (exports minus imports). Classify each case: a household buys a car, a firm buys robots, the government builds a health centre and a country sells oranges abroad.

An economy has these annual figures, in billions of euros: consumption $600$, investment $150$, public spending $250$, exports $200$ and imports $220$.

1. a) Calculate the country's aggregate demand (and, with it, GDP) by adding the components.
2. b) What sign does the foreign balance have and what does it mean for the country's demand?

Explain what aggregate supply is and mention two factors that can increase it. How does it relate to firms' production costs?

The figure shows the aggregate demand and aggregate supply curves of an imaginary country.

1. a) Read the equilibrium price level and output from the graph.
2. b) Explain in your own words what this macroeconomic equilibrium point means.

What does macroeconomic equilibrium mean? Explain what it means for an economy to be producing "below its potential": which resources are going to waste and how is that noticeable in real life?

Households in a country, optimistic about the future, increase their consumption.

1. a) Which curve shifts and in which direction?
2. b) Explain what happens to the equilibrium output and price level.

Spanish exports of tourism services break records two years in a row.

1. a) Which component of aggregate demand increases and which way does the curve shift?
2. b) Explain the effect on the equilibrium output and price level.
3. c) Reason what difference it makes if the economy has high unemployment or is already close to its maximum capacity.

A coastal autonomous community experiences an intense tourism “boom”: the arrival of foreign visitors doubles in one year, driving up spending on hospitality, transport, and leisure. At the same time, hotels and restaurants expand their facilities and hire thousands of additional workers.

1. a) Graph and explain using the AD-AS model the short-term impact on regional GDP and the general price level. Accurately identify which specific components of aggregate demand have been affected.
2. b) In the medium term, shortages of labor and housing push up required wages and commercial rents throughout the region. Predict how this cost reaction will affect regional aggregate supply and the final macroeconomic equilibrium.
3. c) Design a policy intervention for the regional government to mitigate the risk of overheating and inflation without destroying the employment generated. Justify the pros and cons of your proposal.

Explain what aggregate supply is and why, in the short run, it is usually drawn with a positive slope: if the prices firms can charge rise faster than their costs, what incentive do they have to produce?

Classify these events as demand shocks or supply shocks: a wave of optimism that sends business investment soaring, an earthquake that destroys factories, an increase in public spending on roads and a worldwide rise in the price of gas.

The price of oil doubles, driving up transport and manufacturing costs across the country.

1. a) Which curve is affected and why?
2. b) Analyse the new equilibrium: what happens to output and prices, and what problem does this combination of effects pose?