MGEB06H3 Chapter : Week 10 chapter notes
6 Dec 2010
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How the short run and the long run differ. The model of aggregate supply and aggregate demand. N when prices are fixed, output also depends on the demand for goods and services. N aggregate demand (ad) the negative relationship between the price level and the aggregate quantity of output demanded that arises from the interaction between the goods market and the money market. The long run: the vertical aggregate supply curve. The short run: the horizontal aggregate supply curve. From the short run to the long run. N monetary policy is an important component of stabilization policy because the money supply has a powerful impact on ad. Summary: economies experience short-run fluctuations in economic activity, measured most broadly by real gdp. These fluctuations (business cycles) are evident in many macroeconomic variables. In particular, when gdp growth declines, the unemployment rate rises above its natural rate.
