Unformatted text preview: Let's work through an example. For this example, refer to . Notice that we begin at point A where short-run aggregate supply curve 1 meets the long-run aggregate supply curve and aggregate demand curve 1. The point where the short-run aggregate supply curve and the aggregate demand curve meet is always the short-run equilibrium. The point where the long-run aggregate supply curve and the aggregate demand curve meet is always the long-run equilibrium. Thus, we are in long-run equilibrium to begin. Now say that the Fed pursues expansionary monetary policy. In this case, the aggregate demand curve shifts to the right from aggregate demand curve 1 to aggregate demand curve 2. The intersection of short- run aggregate supply curve 1 and aggregate demand curve 2 has now shifted to the upper right from point A to point B. At point B, both output curve 2 has now shifted to the upper right from point A to point B....
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This note was uploaded on 12/13/2011 for the course ECO 1320 taught by Professor Staff during the Fall '11 term at Texas State.
- Fall '11