Aggregate Demand and Supply Models Essay Example | Topics and Well Written Essays - 250 words

Aggregate Demand and Supply Models - Essay Example A change in the rate of unemployment will hence result to a change in the demand and supply hence affecting the equilibrium market. People form expectations about prices; quantity supplied and inflation based on previous information. If individuals expect a shortage of goods, they will increase demand to store the goods for the scarce season. Sellers will however hold the goods and hence reduce supply since they anticipate increased costs during the scarce period. The same happens in case the customers and sellers expect an increase in prices (Tucker, 2010). Use of past information to form expectations is not efficient as it may result to wrong predictions hence affecting the equilibrium market negatively. Unemployment and expectations hence affect the aggregate equilibrium between supply and demand. The government should, therefore, develop measures to influence this non-price factors affecting demand. The economy will hence operate at equilibrium by avoiding surpluses or