ECON-200 Chapter Notes - Chapter 10: Aggregate Demand, Aggregate Supply, Financial Institution

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The effects of a shift in aggregate demand: Use 4 steps to analyze macroeconomic fluctuations . Decide if it shift aggregate demand or aggregate supply (or both) Use the diagram of aggregate demand and aggregate supply to determine the impact on output and the price level in the short run. Use the diagram of aggregate demand and aggregate supply to analyze how the economy moves from its new short run equilibrium to its long run equilibrium. Determine the effects of a wave of pessimism (say, distrust caused from a scandal at the white house) Because it will affect spending, it affects the aggregate demand curve. Because houses and firms will buy less for any given price level, it shifts the aggregate demand curve to the left. A decrease in aggregate demand causes output to fall in the short run. But over time, the short run aggregate supply curve shifts right and output returns to its natural state.

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