Chapter 19 Aggregate Demand and Aggregate Supply Three key facts about economic fluctuations Explaining Short-Run Economic Fluctuations The Aggregate-Demand Curve The Aggregate-Supply Curve Two causes of economic fluctuations
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Three Key Facts About Economic Fluctuations
Explaining short-run economic fluctuations
1. The economy’s output of goods and services, measured by real GDP
2. The overall price level, measured by the CPI or GDP Deflator
The Aggregate Demand Curve years, the production of goods and services rises. In other years normal growth does not occur, leading to recession.
1. Pigou’s Wealth Effect
2. Keynes’ Interest Rate Effect
1. Changes in spending plans by consumers or firms.
2. Changes in fiscal or monetary policy.
The Aggregate Supply Curve years, the production of goods and services rises. In other years normal growth does not occur, leading to recession.
Why the AS curve is vertical in the long run
Why the long-run AS curve might shift
A new way to depict long-run growth and inflation
Why the short-run AS curve might shift
Two Causes of Economic Fluctuations short-run
The long-run equilibrium: See Figure 19-7
Actions by Policy-makers During Periods of Recession remedy itself over a period of time. Because of the reduction in AD, the price level falls. Eventually, expectations catch up with this new reality, and the expected price level falls as well. Because the fall in the expected price level alters perceptions, wages, and prices, it shifts the SRAS to the right from AS1 to AS2.