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Unformatted text preview: aggregate price level. o Reductions in Money supply shift the aggregate demand curve to the left. • Aggregate supply-the relationship between the quantity of goods and services supplied and the price level. o LR AS is vertical, SR is horizontal. o In the SR when prices are sticky, a fall in aggregate demand lowers the level of output. o Over long periods of time, prices are flexible and the aggregate supply curve is vertical and changes in aggregate demand affect the price level but not the output. Over short periods of time, rices are sticky, the aggregate supply curve is flat, and changes in aggregate demand do affect the economy’s output of G and s. o Fall in aggregate demand lowers output in the short run but in the long run affects only the price level. o Stabilization policy-policy actions aimed at reducing the severity of short run economic fluctuations....
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This note was uploaded on 04/17/2008 for the course ECON 235 taught by Professor Li during the Spring '08 term at Albion College.
- Spring '08