Economics 1022A/B Midterm: Macro Midterm 3 Notes... Chapter 26 and 27

• School: Western University
• Department: Economics
• Course: Economics 1022A/B
• Professor: Lanfeng Yu

Document Summary

Aggregate supply-aggregate demand model explains how real gdp and the price level are determined and how they interact. As-ad model isn t an application of a competitive market. As-ad is a model of an imaginary market for the total of all final goods and services that make up real gdp. Quantity in this market is real gdp and the price is the price level measured by the gdp deflator. Quantity of real gdp supplied is the total quantity of goods and services, valued in constant base-year(2002) dollars, that firms plan to produce during a given period. This quantity depends on: quantity of labour employed, quantity of physical and human capital, state of technology. Quantity of capital, technology, and population are fixed. Quantity of labour is variable as it depends on decisions made by households and firms about the supply and demand for labour.