Glamor Economics

Chapter 146

Chapter 19 How Our Happiness is Measured—National Economy and Happiness Index
Section 1 determines two variables of the national economy—aggregate supply and aggregate demand

In the immediate aftermath of World War II, Japan's economy was on the verge of collapse.At that time, a highly respected old monk suddenly went out of his way and took the lead in eating, drinking and having fun.This is incompatible with the tragic atmosphere after the war, and it is even more incompatible with his status as a virtuous monk.However, Yasunari Kawabata, the famous writer and winner of the Nobel Prize in Literature at that time, and some other cultural celebrities praised the old monk’s deeds very much, because Japan was defeated at that time, and many people lost confidence in the future and life .What the old monk is doing is to encourage people to enjoy life, hoping to awaken people's interest in life.Only when people start to love life can they talk about rebuilding their homes. Japan's economic development later proved this point.

When the economy is depressed, when the total supply is greater than the total demand, that is, when the demand of the society is far less than the supply of the society, people's desire for consumption must be awakened in order to increase production and revive the economy.The old monk takes the lead in eating, drinking and having fun in order to stimulate everyone's desire for consumption, increase production, and balance the total demand and total supply of the society.

Generally speaking, the operation of the entire social economy includes two major parts: aggregate demand and aggregate supply.Aggregate demand can generally be divided into four parts:

1. Consumer demand: it is the daily consumption of residents.

2. Investment demand: It is the demand for goods and labor services formed in the process of investment and reinvestment by enterprises.

3. Government expenditure: It is the purchase of goods and services by government departments.

4. Net export: It represents foreign demand for domestic goods and services.

The aggregate demand curve shifts when the non-price determinants of aggregate demand change.From a macroeconomic point of view, the main factors that cause the shift of the aggregate demand curve are consumption, investment, government purchases, and net exports.

The total supply is the sum of the products and services produced by various sectors of the national economy in a certain period of time.The total supply can be expressed by the sum of the factors of production supplied by the society in a certain period of time or the sum of the rewards received by the factors of production.In the long run, aggregate supply does not depend on the overall level of prices, but on the economy's capital, labor, and production technology used to convert inputs into outputs.In the short run, when the price level deviates from people's expectations, due to illusion, sticky wages or sticky prices, the supply deviates from the natural level determined by various factors of production.When prices are higher than expected, quantity supplied is above its natural rate, and when prices are lower than expected, quantity supplied is below its natural rate.

In a modern economy, if the total social demand is greater than the total social supply, it means that the market is in a tense state of supply and demand, rising prices and social instability; if the total social demand is less than the total social supply, it means that the market is in a weak state and enterprises are underemployed. Rising unemployment and economic depression.The general government regulates economic operation through economic means and administrative means, so that the economy operates on the basis of a balanced supply and demand in society.

In 2007, when China's price level started to rise, Song Guoqing, a famous macroeconomist, did a study that pointed out the delicate relationship between aggregate demand and economic growth.

According to the data released in October 2007, after excluding the special factor of the sharp rise in meat prices, the adjusted quarter-on-quarter growth rate of total demand dropped to a more appropriate level in the third quarter.

From July to August 2007, the industrial production level was quite low. After excluding the meat price, the month-on-month growth rates of the main price indexes all slowed down, and this situation was maintained in September.In the sense of quarter-on-quarter growth, the total demand in the second quarter was "high fever", and the third quarter has "cooled down" significantly.Song Guoqing wrote that whether the fever is completely "reduced" depends on further changes.Judging from the known data, it is now moving in the direction of "reducing fever".

In addition to the passive growth of consumption expenditure caused by the sharp rise in meat prices, the main reason for the sharp fluctuations in the growth rate of aggregate demand is the fluctuation of the trade surplus in goods.

This shows two reasons: First, strong aggregate demand is the main reason for rising prices and inflation.Second, aggregate demand is affected by import and export factors.

Excessive social aggregate demand is often the cause of economic overheating.If aggregate social demand exceeds aggregate supply, the excess demand for goods must be met through excessive consumption of resources, such as by employing workers for extra shifts or using machinery beyond recommended working hours.This type of production is considered unsustainable because excessive consumption cannot be sustained.Often, when the aggregate demand and aggregate supply of a society reach equilibrium or are close to equilibrium, the economic operation tends to be safe and stable.The economy is in equilibrium when aggregate supply equals aggregate demand.At the point of equilibrium, the product and money markets, which determine aggregate demand, and the labor market, which determines aggregate supply, are simultaneously in equilibrium.At this time, the aggregate demand determined by the equilibrium of the product and money markets just makes the products produced by the employment determined by the equilibrium of the labor market fully realize the change.

If there is an imbalance between aggregate supply and aggregate demand, the market price will deviate from the market value and favor a certain aspect, which will not reflect the actual situation of social demand, the economic structure will not be coordinated, and the economic operation will not be normal.In the contradiction between aggregate supply and aggregate demand, aggregate demand is often the main aspect of the contradiction. Therefore, the regulation of aggregate demand should be the focus.The fact that the total demand is greater than the total supply is caused by the distribution of super national income, that is, the distribution of national income in the form of currency value exceeds the actual production of national income.In this case, it appears as inflation.Controlling the distribution of super-national income and maintaining the basic balance between total social supply and total demand are the primary tasks of macroeconomic regulation and control.

[links to related words]

Aggregate supply is the sum of products and services produced by all sectors of the national economy in a certain period of time.The total supply can be expressed by the sum of the factors of production supplied by the society in a certain period of time or the sum of the rewards received by the factors of production.

Aggregate demand refers to the total amount of labor services and purchasing power for products actually formed by social expenditures that can be used for investment and consumption in a country or region within a certain period of time (usually one year).It depends on the general price level and is affected by factors such as domestic investment, net exports, government spending, consumption levels, and money supply.

(End of this chapter)