On domestic goods shifts ad to the left table 10 1

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(on domestic goods) shifts AD to the left
TABLE 10-1 DETERMINANTS OF AGGREGATE DEMAND
LONG-RUN EQUILIBRIUM AND THE PRICE LEVEL
FIGURE 10-5 LONG-RUN ECONOMYWIDE EQUILIBRIUM
CAUSES OF INFLATION Supply-Side Inflation Inflation could be caused by a decrease in aggregate supply with a given aggregate demand curve. Figure 10-8 panel (a) shows a rise in price level caused by a decline in long-run aggregate supply A leftward shift could be caused by:
FIGURE 10-8 EXPLAINING PERSISTENT INFLATION, PANEL (A)
CAUSES OF INFLATION (CONT’D) Demand-Side Inflation If the aggregate demand curve shifts rightward over time at a pace faster than the rightward progression of aggregate supply, then inflation will occur. Figure 10-8 panel (b) If aggregate demand increases for a given level of long-run aggregate supply, the price level must increase
FIGURE 10-8 EXPLAINING PERSISTENT INFLATION, PANEL (B)
FIGURE 10-9 REAL GDP AND THE PRICE LEVEL IN THE UNITED STATES, 1970 TO THE PRESENT Sources: Economic Report of the President; Economic Indicators, various issues; author’s estimates.
EXAMPLE: WILL SLOWED GROWTH OF POTENTIAL U.S. REAL GDP FUEL INFLATION? Economists measure the growth of potential real GDP as a way of determining the rate of which long-run aggregate supply shifts outward. The growth rate was about 3.5 percent in the 1940s and above 4 percent in the 1960s. Between the 1970s and the 1990s, however, the growth rate dropped to around 3 percent. By the early 2010s, potential GDP growth had fallen to a rate of somewhere between 1.0 and 1.5 percent.

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