Lecture 19 AD-AS Model and Fiscal and Monetary Policies

Lecture 19 AD-AS Model and Fiscal and Monetary Policies -...

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Unformatted text preview: AD-AS ModelAggregate demand and aggregate supply model: A model that explains short-run fluctuations in real GDP and the price level.Aggregate demand curve: A curve that shows the relationship between the price level and the quantity of real GDP demanded by households, firms, and the government.Short-run aggregate supply curve: A curve that shows the relationship in the short run between the price level and the quantity of real GDP supplied by firms.Aggregate DemandRemember the reasons why AD is downward sloping:The Wealth Effect:How a change in the price level affects consumption.The Interest-Rate Effect: How a change in the price level affects investment.The International-Trade Effect:How a change in the price level affects net exports. Changes in the price level result in a movement along the AD curve. Changes in the following result in a shift of the AD curve:1) Changes in government and central bank (Fed) policies (fiscal and monetary)....
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Lecture 19 AD-AS Model and Fiscal and Monetary Policies -...

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