Aggregate Demand and Aggregate Supply

H1 Economics - syllabus 8843, 2026

Original teaching notes

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Explain economy-wide spending, production and prices, then analyse demand and supply shocks with their assumptions.

• Read an AD/AS diagram

  Real output and the price level measure different changes.

• Identify the components of aggregate demand

  AD measures planned spending on domestic final output.

• Explain changes in consumption and investment

  Expected income and sales influence spending decisions.

• Explain government spending and net exports

  Trade affects both spending and productive conditions.

• Explain aggregate supply and its determinants

  Costs and productive resources determine what firms can supply.

• Explain equilibrium and adjustment

  The intersection need not mean full employment.

• Trace an aggregate demand shock

  A demand shift can change both output and prices.

• Trace aggregate supply shocks

  Higher costs can raise prices while reducing output.

• Distinguish spare capacity from productive capacity

  Using idle resources differs from expanding productive potential.

• Explain successive rounds of spending

  Extra income can support further domestic spending.

• Build a conditional AD/AS explanation

  State which outcome depends on the size and timing of the shocks.