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Chapter 33Chapter 20 Aggregate Demand and Aggregate Supply WHAT’S NEW IN THE THIRD EDITION: There is a new In the News box on "The Trash Indicator" and a new Case Study on "The 2001  Recession."  The Case Study on "Oil and the Economy" has been updated.  A new FYI box on "The  Origins of Aggregate Demand and Aggregate Supply" has also been added. LEARNING OBJECTIVES: By the end of this chapter, students should understand: three key facts about short-run economic fluctuations. how the economy in the short run differs from the economy in the long run. how to use the model of aggregate demand and aggregate supply to explain economic fluctuations. how shifts in either aggregate demand or aggregate supply can cause booms and recessions. CONTEXT AND PURPOSE: To this point, our study of macroeconomic theory has concentrated on the behavior of the economy in the  long run. Chapters 20 through 22 now focus on short-run fluctuations in the economy around its long-term  trend. Chapter 20 introduces aggregate demand and aggregate supply and shows how shifts in these  curves can cause recessions. Chapter 21 focuses on how policymakers use the tools of monetary and  fiscal policy to influence aggregate demand. Chapter 22 addresses the relationship between inflation and  unemployment. The purpose of Chapter 20 is to develop the model economists use to analyze the economy’s  short-run fluctuations—the model of aggregate demand and aggregate supply. Students will learn about  some of the sources for shifts in the aggregate-demand curve and the aggregate-supply curve and how  these shifts can cause recessions. This chapter also introduces actions policymakers might undertake to  offset recessions. 1
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 Chapter 33/Aggregate Demand and Aggregate Supply
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Chapter 33/Aggregate Demand and Aggregate Supply   3 KEY POINTS: 1. All societies experience short-run economic fluctuations around long-run trends.  These fluctuations  are irregular and largely unpredictable.  When recessions do occur, real GDP and other measures of  income, spending, and production fall, and unemployment rises. 2. Economists analyze short-run economic fluctuations using the model of aggregate demand and  aggregate supply.  According to this model, the output of goods and services and the overall level of  prices adjust to balance aggregate demand and aggregate supply.
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