How do different forces’ interact to determine overall economic activity? Figure 2()’5 shows the’ relation ships among the different variables inside the macroeconomy. It separates variables into two categories: those affecting aggregate supply and those affecting aggregate demand. Dividing variables into these two categories helps us understand what determines the levels of output, prices. and unemployment.

The lower part of Figure 20-5 shows the forces affecting aggregate supply. Aggregate supply refers to the total quantity of goods and services that the nation’s businesses willingly produce and sell in a given exogenous forces like was sand weather, and by government policies. Losing both blades .of the’ scissors of supply and demand, achieve the resulting equilibrium, as is in the right-hand circle of Fig 20-5 national output and the price level settle at that level where-demands willingly buy what bus sell. The resulting output and price employment, unemployment. and Instructional trade.

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