Chapter 27 - Aggregate Demand and Supply

Chapter 27 - Aggregate Demand and Supply - taxes spending...

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AGGREGATE SUPPLY AND AGGREGATE DEMAND 27 CHAPTER
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Production and Prices What causes inflation? Why do we have business cycles? How do policy actions by the government and the Federal Reserve affect output and prices?
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Aggregate Supply Figure: LAS curve with potential GDP of $10 trillion.
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Aggregate Supply Figure: Short-run AS curve. SAS
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Aggregate Supply Changes in AS Potential GDP changes due to: Change in quantity of labor Change in the quantity of physical or human capital Advance in technology
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Aggregate Supply Figure: shift of LAS and SAS curve.
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Aggregate Supply Figure: Rise in wage rate
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Aggregate Demand Aggregate demand: relationship between real GDP and price level. Real GDP = C + I + G
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Aggregate Demand AD depends on: Price level Expectations Fiscal and monetary policy International factors
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Aggregate Demand Figure: AD curve.
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Aggregate Demand Fiscal policy The Government changing:
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Unformatted text preview: taxes spending. These change AD Aggregate Demand Monetary policy Federal Reserve Bank changes: interest rate quantity of money. These change AD Aggregate Demand Figure: Changes in AD Macroeconomic Equilibrium Figure: Short-run equilibrium. Macroeconomic Equilibrium Business cycles occur because AD and SAS fluctuate. Macroeconomic Equilibrium Fluctuations in AD Figure: Increase in AD Macroeconomic Equilibrium Firms increase production and raise prices — a movement along the SAS curve. Macroeconomic Equilibrium Fluctuations in SAS Figure: Decrease in SAS Macroeconomic Equilibrium Real GDP decreases and price level rises. Economic Growth, Inflation, Cycles 1960 to 2001: Real GDP grew from $2.4 trillion to $9.3 trillion. Price level rose from 22 to 109. Business cycle expansions and...
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