Aggregate Demand and Aggregate Supply

 

Economic activity fluctuates from year to year.

 

What is a Recession

 

What is a Depression

 

Model of Aggregate Demand and Aggregate Supply: the model that most economists use to explain short-run fluctuations in economic activity around its long-run trend.

                         Aggregate-Demand Curve: a curve that shows the quantity of goods and services that households, firms, and the government want to buy at each price level.

                         Aggregate-Supply Curve: a curve that shows the quantity of goods and services that firms choose to produce and sell at each price level.

 

3.         In this model, the price level and the quantity of output adjust to bring aggregate demand and aggregate supply into balance.

 

        The Aggregate-Demand Curve

 
 
 

 

 


 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


What is the The Wealth Effect

 

What is The Interest-Rate Effect

 

What is The Exchange-Rate Effect

What factors cause AD to shift

 

         The Aggregate-Supply Curve

Why the Aggregate-Supply Curve Is Vertical in the Long Run

 

        

Why the Aggregate-Supply Curve Is Upward Sloping in the Short Run

 
           

 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


What is The Misperceptions Theory

 

What is The Sticky-Wage Theory

 

What is The Sticky-Price Theory

 

 

What factors cause the Short-Run Aggregate-Supply Curve to Shift

 

 

Where is the Long-Run Equilibrium

  

1.         Long-run equilibrium is found where the aggregate-demand curve intersects with the long-run aggregate-supply curve.

 

2.         Output is at its natural rate.

 

3.         Also at this point, perceptions, wages, and prices have all adjusted so that the short-run aggregate-supply curve intersects at this point as well.

 

 


Be able to use the AD/AS framework!!!

Know where the short run point is and be able to do the last step to bring the model into equilibrium

Know the difference between a demand and supply side recession.

Know how to fight a recession with fiscal and monetary policy



Fiscal Policy

What is Fiscal Policy
What are automatic stabilizers and what are some examples
What is discretionary Fiscal Policy and what are some examples

What are the pros and cons of Fiscal policy in general and specific to demand-side and supply-side shocks