Principles of Economics- Mankiw (5th) 691

Principles of Economics- Mankiw (5th) 691 - CHAPTER 31 A G...

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CHAPTER 31 AGGREGATE DEMAND AND AGGREGATE SUPPLY 715 be viewed as decreasing the quantity of goods and services supplied and shifting the long-run aggregate-supply curve to the left. A NEW WAY TO DEPICT LONG-RUN GROWTH AND INFLATION Having introduced the economy’s aggregate-demand curve and the long-run aggregate-supply curve, we now have a new way to describe the economy’s long- run trends. Figure 31-5 illustrates the changes that occur in the economy from decade to decade. Notice that both curves are shifting. Although there are many forces that govern the economy in the long run and can in principle cause such shifts, the two most important in practice are technology and monetary policy. Technological progress enhances the economy’s ability to produce goods and ser- vices, and this continually shifts the long-run aggregate-supply curve to the right. At the same time, because the Fed increases the money supply over time, the aggregate-demand curve also shifts to the right. As the figure illustrates, the result
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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.

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