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Chapter Thirteen:

Chapter Thirteen:. Aggregate Supply, Aggregate Demand, and Inflation: Putting it All Together. Aggregate Demand and Inflation. Figure 13.1: The Aggregate Demand Curve. …the level of Aggregate Demand falls. B. π 1. Inflation rate ( π ). A. If inflation rises…. π 0. Aggregate Demand (AD).

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Chapter Thirteen:

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  1. Chapter Thirteen: Aggregate Supply, Aggregate Demand, and Inflation: Putting it All Together

  2. Aggregate Demand and Inflation

  3. Figure 13.1: The Aggregate Demand Curve …the level of Aggregate Demand falls B π1 Inflation rate (π) A If inflation rises… π0 Aggregate Demand (AD) Y1 Y0 Output (Y )

  4. Figure 13.2: The Effect of Expansionary Fiscal Policy or Increased Confidence on the AD Curve Inflation rate (π) AD1 AD0 Output (Y )

  5. Aggregate Demand and Inflation

  6. Figure 13.3: The Aggregate Supply Curve Wage-Price Spiral Unemployment Aggregate Supply (AS) Inflation rate (π) Maximum Capacity Output (Y ) Y*

  7. Figure 13.4: The Effect of an Increase in Inflationary Expectations on the Aggregate Supply Curve Inflation rate (π) AS1 5 % - AS0 3 % - Output (Y )

  8. Figure 13.5: A Beneficial Supply Shock: Expansion of Output Capacity Inflation rate (π) AS0 AS1 Expansion of Maximum Capacity Output (Y )

  9. Putting the AS/AD Model to Work

  10. Figure 13.6: The Aggregate Demand and Supply Equilibrium in Recession Unemployment AS Inflation rate (π) E0 AD Output (Y ) Y*

  11. Figure 13.7: Expansionary Fiscal Policy in Response to a Recession Unemployment AS Inflation rate (π) E1 E0 AD0 AD1 Output (Y ) Y*

  12. Figure 13.8: A Greater Expansion of Aggregate Demand Unemployment AS Inflation rate (π) E1 AD1 E0 AD0 Output (Y ) Y*

  13. Figure 13.9: Excessively High Aggregate Demand Causes Inflation Wage-Price Spiral AS Inflation rate (π) E1 E0 AD1 AD0 Output (Y ) Y*

  14. Figure 13.10: The Phillips Curve in the 1960s 1969 1968 1967 Inflation (percent per year) 1966 1965 1964 1963 Unemployment Rate (percent)

  15. Figure 13.11: Contractionary Fiscal Policy and Rising Inflationary Expectations AS1 E1 Inflation rate (π) E0 AS0 AD0 AD1 Output (Y ) Y*

  16. Figure 13.12: The Effect of the Oil Price Shock of the 1970s AS1 E1 Inflation rate (π) AS0 E0 AD Lower Capacity Output (Y )

  17. Figure 13.13: The Effects of The Fed’s “Tight Money” Policies in the 1980s Unemployment AS0 AS1 Inflation rate (π) E0 E1 AD0 AD1 Output (Y ) Y*

  18. Figure 13.14: Unemployment Trends 1960-2012 (Percentage of Labor Force) 0 Source: Bureau of Labor Statistics, http://bls.gov/cps/cpsaat01.pdf

  19. Figure 13.15: Inflation Trends 1960-2012 Source: Bureau of Labor Statistics, ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

  20. Figure 13.16: The Effects of Technological Innovation and Increased Efficiency Inflation rate (π) E0 AS0 E1 AS1 E2 AS2 AD Higher Capacity Output (Y )

  21. Competing Theories

  22. Figure 13.17: The Classical View of AS/AD Classical AS Inflation rate (π) AD Output (Y ) Y*

  23. Figure 13.18: A New Classical View of Economic Fluctuations Classical ASR E1 Inflation rate (π) AS1 E0 AE1 AD0 AS0 Y* Output (Y )

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