Principles of Economics- Mankiw (5th) 696

Principles of Economics- Mankiw (5th) 696 - 720 PA R T T W...

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720 PART TWELVE SHORT-RUN ECONOMIC FLUCTUATIONS TWO CAUSES OF ECONOMIC FLUCTUATIONS Now that we have introduced the model of aggregate demand and aggregate sup- ply, we have the basic tools we need to analyze fluctuations in economic activity. In the next two chapters we will refine our understanding of how to use these tools. But even now we can use what we have learned about aggregate demand and aggregate supply to examine the two basic causes of short-run fluctuations. Figure 31-7 shows an economy in long-run equilibrium. Equilibrium output and the price level are determined by the intersection of the aggregate-demand curve and the long-run aggregate-supply curve, shown as point A in the figure. At this point, output is at its natural rate. The short-run aggregate-supply curve passes through this point as well, indicating that perceptions, wages, and prices Table 31-2 T HE S HORT -R UN A GGREGATE -S UPPLY C URVE :S UMMARY W HY D OES THE S HORT -R UN A GGREGATE -S UPPLY C URVE S LOPE U PWARD
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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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