For whom are things going to be produced? In other words, how will the nations income the distributed? How are things going to be produced, given that there is normally more than one way of producing things? What goods and services are going to be produced and in what quantities, given that there are not enough resources to produce all the things that people desire? What resources are going to be used and in what techniques of production are going to be used? .
4) What happens if aggregate demand is too low to aggregate supply?.
Macroeconomics is concerned with the economy as a whole. It is related with aggregate demand and aggregate supply. By aggregate demand it means the total amount of spending in the economy, whether by consumers, by customers outside the country for our export. By aggregate supply it means the total national output of goods and services. Unemployment and recession may occur if aggregate demand is too low relative to aggregate supply. Recession occurs when output in the economy declines: in other words, growth becomes negative. A recession is concerned with a low level of consumer spending. If people consume less, shops will find themselves with unsold stocks. As a result production will decrease as they will buy less from the manufacturers. Decrease in production will cause unemployment. Firms will employ fewer people when there is less production.
5) The amount by which the quantity demanded falls will primarily depend on the size of the income and substitution effects. Discuss.
Price of a good is indirectly proportional to quantity demanded. When the price of a good rises, the quantity demanded will fall and this relationship is known as the law of demand.There are two reasons for this law which are income effect and substitution effect. The income effect of a price rise is that people will feel poorer and they will not be able to afford to buy much of the good with their money due to their decrease in purchasing power of their income.
