ECON 1100 Chapter Notes - Chapter 9-11: Aggregate Supply, Aggregate Demand, Menu Cost

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Chapter 9 - aggregate demand and aggregate supply. Aggregate demand and aggregate supply model - a model that explains short-run fluctuations in real. Price level - a measure of the average prices of goods and services in the economy. Aggregate demand curve (ad) - a curve that shows the relationship between the price level and the quantity of real gdp demanded by households, firms and the government. Short-run aggregate supply curve (sras) - a curve that shows the relationship in the short-run between the price level and the quantity of real gdp supplied by firms. In the short run, real gdp and price level are determined by the intersection of the aggregate demand curve and short-run aggregate supply curve. Aggregate demand curve downward sloping: wealth effect, when price level rises, real value of wealth of household falls, decreasing consumption, when price level falls, real value of wealth of household rises, increasing consumption.

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