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Chapter 07 - Aggregate Demand and Aggregate Supply Chapter Seven Aggregate Demand and Aggregate Supply CHAPTER OVERVIEW What students learn in this chapter will help organize their thoughts about equilibrium GDP, the price level, and government macroeconomic policies. The tools learned will be applied in later chapters and help students better understand the effects of fiscal and monetary policy. The present chapter introduces the concepts of aggregate demand and aggregate supply, explaining the shapes of the aggregate demand and aggregate supply curves and the forces causing them to shift. The equilibrium levels of prices and real GDP are considered. Finally, the chapter analyzes the effects of shifts in the aggregate demand and/or aggregate supply curves on the price level and size of real GDP, and examines the problem of downward inflexibility of wages and prices. INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Define aggregate demand and aggregate supply. 2. State the determinants of the aggregate demand curves location, and explain how the curve will shift when one of these determinants changes. 3. Explain the shape of the immediate-short-run aggregate supply curve. 4. Explain the shape of the short-run aggregate supply curve. 5. Explain the shape of the long-run aggregate supply curve. 6. State the determinants of the aggregate supply curves location, and explain how the curve will shift when one of those determinants changes. 7. Find an economys equilibrium price level and real domestic output using AD-AS. 8. Demonstrate and explain the effects of shifts in aggregate demand and/or aggregate supply on the equilibrium price level and real domestic output of an economy. 9. Illustrate and differentiate between demand-pull inflation and cost-push inflation.... View Full Document

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