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And finance Allah Shmoop What is aggregate demand versus aggregate

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

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Really Nothing The fundamental concepts of economics Anyone crickets were

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

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over It quickly supplies the amount of something There is

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

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Row after row of shelves filled with you know pungently

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stinky Roque for cheese that people want to eat voluntarily

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so that supplies fly cheese All right Now demand out

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there mostly in France and in small pockets throughout the

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rest of the cheese eating world There are people who

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love Roque for cheese They just want to stick its

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moldy tang right into their mouths And actually like tasting

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

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aggregate supply and aggregate demand Well aggregate here just means

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total Like in everything in all the world all the

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demand added up and that equals aggregate demand All right

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and all the supply added up and all that stuff

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you have that equals aggregates supply Well these two terms

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come up when you talk about an economy as a

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whole Aggregate demand is that man for all goods and

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services available in an economy All the cheese yes but

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also all the haircuts the overrides the sushi dinners the

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massages and fancy colorful drinks with little umbrellas in them

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

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aggregate demand and also all the cars and appliances and

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pianos and air conditioners and electricity and gasoline and furniture

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And Kato diet shakes those everything Meanwhile you have aggregate

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

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and services that an economy supplies all the output of

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the makers or providers of haircuts and sushi dinners and

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massages and fancy drinks as well as all the other

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stuff that gets made in an economy will aggregate demand

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

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huge number so tiny little one percent d kind of

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effects are still huge numbers All right so what affects

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it Well one is the value of money so changes

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in inflation expectations can either encourage people to buy more

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stuff or encourage them to sock away money for the

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future If people think inflation is going to be high

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in the future well people may run out today and

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buy stuff before prices go up This would increase aggregate

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

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value in the future People will be more likely to

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save or invest their money well This a lower aggregate

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demand as people put off purchases until later Will interest

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rates play a role as well Here low interest rates

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make borrowing and thus buying easier Low interest rates Allow

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people to buy more big ticket stuff you know like

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cars or houses or yachts On the other side of

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the world there are some things that traditionally impact aggregates

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Supply supply shocks can temporarily impact aggregates supply like of

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a hurricane wipes out a major oil refinery or coal

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area Or if a herd of elephants runs rampant in

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

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leading workers to exit the region So the cost of

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labor then goes up right because when your toilets overflowing

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

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

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you know or at least adds to production costs So

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

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

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and still the same amount of demand So supplies your

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

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

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another factor here of force As the economy gets better

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it producing things it can make more stuff from the

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same supply or same amount of resource is so of

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robots could suddenly make muffins for five cents each instead

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of the twelve cents each it cost When humans make

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him well then aggregate demand for muffins would probably go

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up because they suddenly got a whole lot cheaper Thank

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you Mr Robot Danger Danger What does that mean from

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an investment side Well if companies invest less because of

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negative expectations higher taxes or higher borrowing costs well then

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

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less volume being traded around less supply less demand because

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the higher borrowing costs have added friction to the process

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

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inflation spiraling out of control and they raise the central

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bank rates around the world or the Fed in the

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U S so remember again the very small changes and

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things like borrowing costs just a half a percent or

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something on fifty trillion dollars Sloshing around out there have

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enormous effects on the marginal supply and marginal demand volumes

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that you know get put through the system You know

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

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totally full of rain and suddenly that big pipe contracts

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happen inch in diameter Well bad things happen to the

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other end So back to our mad goat disease Well

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if robots find a way to mold cheese more efficiently

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

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to be more rope for to go around and then

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think about all of this applied to globally lower interest

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rates like even the difference of one percent globally in

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a desa trillion dollar economy one percent All that borrowing

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is a massive number So if they lower interest rates

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

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to buy all the high end stinky cheese when you

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could get your hands on So yeah I think about

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aggregate demand aggregate supply their huge numbers across the whole

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

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