ECON 1100 Lecture Notes - Lecture 9: Aggregate Supply, Aggregate Demand, Co-Determination
Document Summary
Economic fluctuations: four steps to analyzing macroeconomics fluctuations. Decide whether the event shifts the aggregate demand or the aggregate supply curve (or both) Use the diagram of aggregate demand and aggregate supply codetermine the impact on output and the price level in the short run. Use the diagram to analyze how the economy moves from its new short run equilibrium to its long run equilibrium. Shift in aggregate demand: example: pessimism causes household spending and investment to decline. The bad expectations (pessimism) about the future will cause the aggregate-demand curve to shift to the left. In the short run, both output and the price level fall. This drop in output means that the economy is in a recession. Over time, as the expected price level adjusts the short run as curve shits to the right. In the long run, the economy will move back tot eh natural rate of output.