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econ 3 - Dr Mohammed Alwosabi Econ 141 Ch.3 Notes on...

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Dr. Mohammed Alwosabi Econ 141 - Ch.3 1 Notes on Chapter 3 AGGREGATE DEMAND AND AGGREGATE SUPPLY The AD-AS model determines RGDP and GDP Deflator and helps us understand the performance of three macroeconomic fundamentals: 1. Growth of potential GDP 2. Inflation 3. Business cycle fluctuations (expansion and recession) AGGREGATE DEMAND (AD) AD is the total amount of goods and services produced in a country (the quantity of RGDP demanded) that people, businesses, government, and foreigners are willing and able to buy at different price levels within a given period. AD = RGDP = Y = C + I + G + NX Aggregate Demand (AD) Curve The aggregate demand curve (AD) shows the inverse relationship between RGDP demanded and the price level (using either the GDP Deflator or CPI) when all other things remain the same. AD curve has negative slope (slopes downward) because of two effects: RGDP P P 0 P 1 AD Y 0 Y 1 0
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