CHAPTER 22 Aggregate Demand and Aggregate Supply

Potential outputThe level of output aneconomy can achieve whenlabor is employed at itsnatural 22 Aggregate Demand andAggregate SupplySTART UP: THE GREAT WARNINGT hefirstwarningcamefromtheHarvardEconomic Society,anassociationofHarvardeconomicsp rofessors, ,fueledbysoaringinvestment, automobiles,publicpower,homeappliances,s yntheticfabrics,radio, momentum all its own. Prosperity was not about to end, no matter what a few economists might , , , history, the Great Depression, had ,realGDPhadfallen30%, ,andprices,measuredbytheimplicitpricedef lator,hadplunged23% ;itwasnotuntilWorldWarIIthatfullem-ploym ent was (realGDP),thepricelevel, ;greater detail, more examples, and more thorough explanations will follow in subsequent ,theremaybeactionsthatthegovernmentorthe centralbankcantaketopushtheeconomy toward it, and in this CHAPTER we will begin to consider the pros and cons of doing PDF created exclusively for ruthi aladjem demandThe relationship between thetotal quantity of goods andservices demanded (from allthe four sources of Demand )and the price level, all otherdeterminants of Demand curveA graphical representation ofaggregate DEMANDLEARNING potential output, also called the natural level of Aggregate Demand , represent it using a hypothetical Aggregate Demand curve, andidentify and explain the three effects that cause this curve to slope between a change in the Aggregate quantity of goods and services demanded anda change in Aggregate examples to explain how

short run In macroeconomic analysis, a period in which wages and some other prices are sticky and do not respond to changes in economic conditions. sticky price A price that is slow to adjust to its equilibrium level, creating sustained periods of shortage or surplus. long run In macroeconomic analysis, a period in which wages and prices are ...

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