Aggregate Demand and Supply

Aggregate Demand (AD) is the total amount of goods and services that households, businesses, government, and foreigners are willing to buy at various price levels in an economy. Aggregate Supply (AS) is the total output of goods and services that producers are willing to supply at different price levels. The intersection of AD and AS determines the overall economic activity, influencing prices, employment, and growth. When demand increases or supply decreases, prices tend to rise, leading to inflation. Conversely, when demand drops or supply rises, it can cause economic slowdown or deflation.