Shifts in Supply and Demand

And finance Allah Shmoop What is aggregate demand versus aggregate

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

Really Nothing The fundamental concepts of economics Anyone crickets were

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

over It quickly supplies the amount of something There is

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

Row after row of shelves filled with you know pungently

stinky Roque for cheese that people want to eat voluntarily

so that supplies fly cheese All right Now demand out

there mostly in France and in small pockets throughout the

rest of the cheese eating world There are people who

love Roque for cheese They just want to stick its

moldy tang right into their mouths And actually like tasting

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

aggregate supply and aggregate demand Well aggregate here just means

total Like in everything in all the world all the

demand added up and that equals aggregate demand All right

and all the supply added up and all that stuff

you have that equals aggregates supply Well these two terms

come up when you talk about an economy as a

whole Aggregate demand is that man for all goods and

services available in an economy All the cheese yes but

also all the haircuts the overrides the sushi dinners the

massages and fancy colorful drinks with little umbrellas in them

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

aggregate demand and also all the cars and appliances and

pianos and air conditioners and electricity and gasoline and furniture

And Kato diet shakes those everything Meanwhile you have aggregate

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

and services that an economy supplies all the output of

the makers or providers of haircuts and sushi dinners and

massages and fancy drinks as well as all the other

stuff that gets made in an economy will aggregate demand

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

huge number so tiny little one percent d kind of

effects are still huge numbers All right so what affects

it Well one is the value of money so changes

in inflation expectations can either encourage people to buy more

stuff or encourage them to sock away money for the

future If people think inflation is going to be high

in the future well people may run out today and

buy stuff before prices go up This would increase aggregate

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

value in the future People will be more likely to

save or invest their money well This a lower aggregate

demand as people put off purchases until later Will interest

rates play a role as well Here low interest rates

make borrowing and thus buying easier Low interest rates Allow

people to buy more big ticket stuff you know like

cars or houses or yachts On the other side of

the world there are some things that traditionally impact aggregates

Supply supply shocks can temporarily impact aggregates supply like of

a hurricane wipes out a major oil refinery or coal

area Or if a herd of elephants runs rampant in

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

leading workers to exit the region So the cost of

labor then goes up right because when your toilets overflowing

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

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

you know or at least adds to production costs So

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

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

and still the same amount of demand So supplies your

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

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

another factor here of force As the economy gets better

it producing things it can make more stuff from the

same supply or same amount of resource is so of

robots could suddenly make muffins for five cents each instead

of the twelve cents each it cost When humans make

him well then aggregate demand for muffins would probably go

up because they suddenly got a whole lot cheaper Thank

you Mr Robot Danger Danger What does that mean from

an investment side Well if companies invest less because of

negative expectations higher taxes or higher borrowing costs well then

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

less volume being traded around less supply less demand because

the higher borrowing costs have added friction to the process

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

inflation spiraling out of control and they raise the central

bank rates around the world or the Fed in the

U S so remember again the very small changes and

things like borrowing costs just a half a percent or

something on fifty trillion dollars Sloshing around out there have

enormous effects on the marginal supply and marginal demand volumes

that you know get put through the system You know

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

totally full of rain and suddenly that big pipe contracts

happen inch in diameter Well bad things happen to the

other end So back to our mad goat disease Well

if robots find a way to mold cheese more efficiently

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

to be more rope for to go around and then

think about all of this applied to globally lower interest

rates like even the difference of one percent globally in

a desa trillion dollar economy one percent All that borrowing

is a massive number So if they lower interest rates

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

to buy all the high end stinky cheese when you

could get your hands on So yeah I think about

aggregate demand aggregate supply their huge numbers across the whole

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