ECON 1100 Lecture Notes - Lecture 9: Aggregate Supply, Aggregate Demand, Co-Determination

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14 Jun 2017

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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.

Related Questions

If aggregate demand shifts right then in the short run:

a. firms will increase production. In the long run, increased price expectations shift the short-run aggregate supply curve to the left.

b. firms will increase production. In the long run, increased price expectations shift the short-run aggregate supply curve to the right.

c. firms will decrease production. In the long run, increased price expectations shift the short-run aggregate supply curve to the left.

d. firms will decrease production. In the long run, increased price expectations shift the short-run aggregate supply curve to the right.

redraven98

It is stated that the equilibrium level of output is the most important concept in all of economics. The economy is at its best when short-run supply and aggregate demand intersect in the long-run aggregate supply curve. Suppose we are at this point. Now suppose that there is a positive aggregate demand shock that shifts out the aggregate demand curve in the short run.

What is the impact on both the quantity supplied and price?

How does the economy adjust back to the long run if the government takes NO corrective action?

What would be the impact if the government does take action to get the economy back to the long run?

azureguinea-pig380

Suppose an economy is in long-run equilibrium. An increase in consumption expenditure will:

A. increase the price level in the long run but have no effect on real gross domestic product.

B. shift the aggregate demand curve rightward and increase the real output in the long run.

C. shift the short-run aggregate supply curve rightward and increase both the price level and real output in the long run.

D. decrease both the price level and real gross domestic product in the long run.

cerisealligator131

ECON 1100 Lecture Notes - Lecture 9: Aggregate Supply, Aggregate Demand, Co-Determination

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