Unformatted text preview: Why does a fall in the price level raise the quantity of goods and services de-manded? To answer this question, it is useful to recall that GDP (which we denote as Y ) is the sum of consumption ( C ), investment ( I ), government purchases ( G ), and net exports ( NX ): Equilibrium output Quantity of Output Price Level Equilibrium price level Aggregate supply Aggregate demand Figure 31-2 A GGREGATE D EMAND AND A GGREGATE S UPPLY . Economists use the model of aggregate demand and aggregate supply to analyze economic fluctuations. On the vertical axis is the overall level of prices. On the horizontal axis is the economy’s total output of goods and services. Output and the price level adjust to the point at which the aggregate-supply and aggregate-demand curves intersect....
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.
- Spring '10