Final answer:
Aggregate demand and supply reveal the quantity of goods and services that will be demanded and supplied at different price levels. They together help to analyze the economic output at various price points and provide insights into potential GDP or full-employment GDP within an economy.
Step-by-step explanation:
When used together, aggregate demand and supply reveal how much goods and services will be demanded and supplied at different price levels. Aggregate demand encompasses the total amount of goods and services that will be purchased at all possible price levels within an economy. This includes consumption, investment, government spending, and net exports (exports minus imports). On the other hand, aggregate supply refers to the total amount of goods and services that businesses are willing and able to provide at varying price levels.
It is also important to understand that a variety of economic events and policy decisions can influence aggregate demand and supply, such as government tax and spending decisions, consumer and business confidence, and changes in key input prices like oil. Additionally, technology advancements that increase productivity can also have an impact. Together, these two curves can be used to understand the overall economic output, including how it is affected by price levels, and in the long-term, they provide insights into the potential GDP, which is sometimes termed as full-employment GDP.