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United States (205,946)
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Chapter 33

Chapter 33 – Aggregate Demand and Aggregate Supply.docx

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Department
Economics
Course
Economics 10b
Professor
Gregory Mankiw
Semester
Spring

Description
PartXIIShortRunEconomicFluctuationsChapter33AggregateDemandandAggregateSupplyThreeKeyFactsaboutEconomicFluctuationseconomicfluctuationsareirregularandunpredictablebusinesscycleissortofmisleadingmostmacroeconomicquantitiesfluctuatetogetherbutbydifferentamountsrealGDPpersonalincomecorporateprofitsconsumerspendinginvestmentspendingindustrialproductionetcrecessionsareeconomywidereductionsinspendingasoutputfallsunemploymentrisesExplainingShortRunEconomicFluctuationsclassicaltheoryholdsinlongrunbutnotshortruninshortrunrealandnominalvariablesarehighlyintertwinedandchangesinthemoneysupplycanaffectrealGDPmodelofaggregatedemandandaggregatesupplythemodelthatmosteconomistsusetoexplainshortrunfluctuationsineconomicactivityarounditslongruntrendoverallquantityofgoodsandservicesproducedmeasuredbyrealGDPisonthehorizontalaxisoverallpricelevelmeasuredbyCPIorGDPdeflatorisontheverticalaxisaggregatedemandcurvecurveshowsthequantityofgoodsandservicesthathouseholdsfirmsthegovernmentandcustomersabroadwanttobuyateachpricelevelaggregatesupplycurvecurvethatshowsthequantityofgoodsandservicesthatfirmschoosetoproduceandsellateachpricelevelAggregateDemandCurvedownwardslopingmeansthatdecreaseinlevelofpricesraisesquantityofgoodsandservicesdemandedYCIGNXGovernmentspendingfixedbypolicybutotherthreecomponentsofspendingdependsonpricelevelPricelevelandconsumptionthewealtheffectDecreaseinpricelevelraisestherealvalueofmoneyandmakesconsumerswealthierincreaseinconsumptionlargerquantityofgoodsandservicesdemandedPricelevelandinvestmenttheinterestrateeffectIncreaseinrealvalueofmoneydecreaseinmoneyrequiredforhouseholdsincreasesavingdecreaseininterestratesincreasesquantityofgoodsandservicesdemanded
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