Macroeconomics 111 - Chapter 9

Macroeconomics 111 - Chapter 9 - Chapter 9: Macroeconomic...

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Chapter 9: Macroeconomic Equilibrium: Aggregate Demand and Supply AGGREGATE DEMAND - Aggregate Demand – is the economy-wide demand for goods and services -Like the market demand curve, the aggregate demand curve slopes downward, but for different reasons -The reasons for the downward slope are price-level effects 1. Wealth Effect 2. Interest Rate Effect 3. International Trade Effect -These change the purchasing power of money AD = C + I + G + NX AGGREGATE SUPPLY -Aggregate supply is the total of all the firm supply curves -It shows the quantity of real GDP produced at different price levels - Short-run AS slopes upward because an increase in the price level (while production costs and capital are held constant on the short-run), means higher profit margins – firms will want to produce more -Shape in the long run will be vertical INFO Demand-Pull Inflation - inflation caused by increasing demand for output -Caused by increasing demand for output Cost-Push Inflation -inflation caused by rising costs of production -Prices rise due to increased costs of production and association decrease in aggregate Supply Wealth Effect -a change in the real value of wealth that causes spending to change when the level of prices changes Interest Rate Effect
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Macroeconomics 111 - Chapter 9 - Chapter 9: Macroeconomic...

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