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PRESENT VALUE: The amount of money today that, after interest is added, would have the same value as an amount some time in the future. For example, $100 today, given a 10 percent interest rate, would have a value of $110 in one year ($100 plus $10 in interest). Conversely, $110 in one year, given a 10 percent interest rate, would be equivalent to $100 today. The process of translating a future payment into its present value, such an amount to be received when a bond reaches its date of maturity, is often termed discounting.

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Lesson 14: Aggregate Supply | Unit 1: The Concept Page: 1 of 20

Topic: What It Is <=PAGE BACK | PAGE NEXT=>

In this lesson we will look at the other side of the aggregate market, the aggregate supply, to see how gross domestic product gets produced.

Society's scarce resources, with the opportunity cost of their alternative uses, must be combined to produce these goods and services.

A Definition:

  • Aggregate supply is the total, or aggregate, production of final goods and services available in the domestic economy at a range of price level, during a given time period (usually one year).
  • Similar to aggregate demand.
The goal of aggregate supply is to combine scarce resources to produce our economy's gross domestic product.
  • Four resource categories of aggregate supply:
    • Labor The people working.
    • Capital Tools and equipment.
    • Land Raw materials.
    • Entrepreneurship Those who assume the risk of production.
  • The goods and services produced are supplied to meet the demands of our households, business, government, and foreign sectors.
  • Gross production is the supply side of the aggregate market, the supply of real production, or real GDP.

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TAX EFFICIENCY

Taxes, mandatory payments used to finance government operations, inherently disrupt the allocation of resources. This disruption might be good, correcting an otherwise inefficient allocation caused by pollution or market control. However, for an already efficiency allocation, a tax creates and inefficient wedge between the demand price and the supply price. This tax is generally paid partially by buyers and partially by sellers, which the tax incidence. Inefficiency arises because a tax reduces the total amount of consumer surplus and producer surplus, which is deadweight loss.

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BLUE PLACIDOLA
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Today, you are likely to spend a great deal of time touring the new suburban shopping complex looking to buy either a set of serrated steak knives, with durable plastic handles or a pair of blue silicon oven mitts. Be on the lookout for the happiest person in the room.
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Two and a half gallons of oil are needed to produce one automobile tire.
"Good humor is a tonic for mind and body. It is the best antidote for anxiety and depression. It is a business asset. It attracts and keeps friends. It lightens human burdens. It is the direct route to serenity and contentment."

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