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Aggregate Supply & Aggregate Demand

Aggregate Supply & Aggregate Demand. Chapter 10-4 The Model. The AS–AD Model. The AS-AD model uses the aggregate supply curve and the aggregate demand curve together to analyze economic fluctuations. The AS–AD Model. Short-Run Macroeconomic Equilibrium.

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Aggregate Supply & Aggregate Demand

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  1. Aggregate Supply & Aggregate Demand Chapter 10-4 The Model

  2. The AS–AD Model The AS-AD model uses the aggregate supply curve and the aggregate demand curve together to analyze economic fluctuations.

  3. The AS–AD Model

  4. Short-Run Macroeconomic Equilibrium • The economy is in short-run macroeconomic equilibrium when the quantity of aggregate output supplied is equal to the quantity demanded. • The short-run equilibrium aggregate price level is the aggregate price level in the short-run macroeconomic equilibrium. • Short-run equilibrium aggregate output is the quantity of aggregate output produced in the short-run macroeconomic equilibrium.

  5. Shifts of the SRAS Curve Stagflation is the combination of inflation and falling aggregate output.

  6. Shifts of the SRAS Curve

  7. Shifts of Aggregate Demand: Short-Run Effects

  8. Shifts of Aggregate Demand: Short-Run Effects

  9. Long-Run Macroeconomic Equilibrium The economy is in long-run macroeconomic equilibrium when the point of short-run macroeconomic equilibrium is on the long-run aggregate supply curve.

  10. Long-Run Macroeconomic Equilibrium

  11. Short-Run Versus Long-Run Effects of a Negative Demand Shock Recessionary gap

  12. Short-Run Versus Long-Run Effects of a Positive Demand Shock Inflationary gap

  13. Self-correcting Mechanism In the long run the economy is self correcting: shocks to aggregate demand do not affect aggregate output in the long run.

  14. Negative Supply Shocks

  15. Negative Supply Shocks Negative supply shocks pose a policy dilemma: a policy that stabilizes aggregate output by increasing aggregate demand will lead to inflation, but a policy that stabilizes prices by reducing aggregate demand will deepen the output slump.

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