Please enable JavaScript.
Coggle requires JavaScript to display documents.
LU 10 Aggregate Demand and Aggregate Supply ((Economic fluctuations are…
LU 10 Aggregate Demand and Aggregate Supply
Short-Run Economic Fluctuations
Economic activity fluctuates from year to year.
• In most years production of goods and services rises.
• In some years normal growth does not occur, indicating a recession.
Economic fluctuations are irregular and unpredictable.
– Fluctuations in the economy are often called the business cycle.
.
– These fluctuations do not follow regular or easily predictable patterns
Most macroeconomic variables fluctuate together.
– Most macroeconomic variables that measure some type of income or production fluctuate closely together.
– Although many macroeconomic variables fluctuate together, they fluctuate by different amounts
As output falls, unemployment rises.
– Changes in real GDP are inversely related to changes in the unemployment rate.
– During times of recession, unemployment rises substantially.
The Model of Aggregate Demand and Aggregate Supply
• The
aggregate-demand
curve shows the quantity of goods and services that households, firms, and the government want to buy at each price level.
Y = C + I + G + NX
Why the Aggregate-Demand Curve Is Downward Sloping
• The Price Level and Consumption: (Wealth Effect)
• The Price Level and Investment: (Interest Rate Effect)
• The Price Level and Net Exports: (Exchange-Rate Effect)
Why the Aggregate-Demand Curve Might Shift
Shifts might arise from changes in:
• Consumption
• Investment
• Government Purchases
• Net Exports
• The
aggregate-supply
curve shows the quantity of goods and services that firms choose to produce and sell at each price level.
Why the Long-Run Aggregate-Supply Curve Might Shift
• Labor
• Capital
• Natural Resources
• Technological Knowledge
Why the Aggregate-Supply Curve Slopes Upward in the Short Run
• The Sticky-Wage Theory
• The Sticky-Price Theory
• The Misperceptions Theory
Why the Short-Run Aggregate-Supply Curve Might Shift
• Expected Price Level.
• Labor.
• Capital.
• Natural Resources.
• Technology