Transcript Document
12 SHORT-RUN ECONOMIC FLUCTUATIONS
Aggregate Demand and Aggregate Supply
33 Copyright © 2006 Thomson Learning
Figure 1 A Look At Short-Run Economic Fluctuations
Copyright © 2004 South-Western
Figure 1 A Look At Short-Run Economic Fluctuations
Copyright © 2004 South-Western
Figure 1 A Look At Short-Run Economic Fluctuations
Copyright © 2004 South-Western
Figure 2 Aggregate Demand and Aggregate Supply...
Price Level
Aggregate supply Equilibrium price level Aggregate demand 0 Equilibrium output
Quantity of Output Copyright © 2004 South-Western
Figure 3 The Aggregate Demand Curve...
Price Level
P P
2 1. A decrease in the price level . . .
0 Aggregate demand
Y Y
2 2. . . . increases the quantity of goods and services demanded.
Quantity of Output Copyright © 2004 South-Western
Figure 4 The Long-Run Aggregate Supply Curve
Price Level
Long-run aggregate supply
P
1. A change in the price level . . .
P
2 0 Natural rate of output 2. . . . does not affect the quantity of goods and services supplied in the long run.
Quantity of Output Copyright © 2004 South-Western
Figure 5 Long-Run Growth and Inflation 2. . . . and growth in the money supply shifts aggregate demand . . .
Long-run aggregate supply,
LRAS
1980
LRAS
1990
LRAS
2000
Price Level
1. In the long run, technological progress shifts long-run aggregate supply . . .
P
2000 4. . . . and ongoing inflation.
P
1990
P
1980 0 Aggregate Demand,
AD
2000
AD
1990
Y
1980
AD
1980
Y
1990
Y
2000
Quantity of Output
3. . . . leading to growth in output . . .
Copyright © 2004 South-Western
Figure 6 The Short-Run Aggregate Supply Curve
Price Level
Short-run aggregate supply
P P
2 1. A decrease in the price level . . .
0
Y
2
Y
2. . . . reduces the quantity of goods and services supplied in the short run.
Quantity of Output Copyright © 2004 South-Western
Figure 7 The Long-Run Equilibrium
Price Level
Long-run aggregate supply Short-run aggregate supply Equilibrium price A 0 Natural rate of output Aggregate demand
Quantity of Output Copyright © 2004 South-Western
Figure 8 A Contraction in Aggregate Demand
Price Level
2. . . . causes output to fall in the short run . . .
Long-run aggregate supply Short-run aggregate supply,
AS AS
2
P
A 3. . . . but over time, the short-run aggregate supply curve shifts . . .
P
2 B
P
3 C 1. A decrease in aggregate demand . . .
Aggregate demand,
AD AD
2 0
Y
2
Y
4. . . . and output returns to its natural rate.
Quantity of Output Copyright © 2004 South-Western
Figure 10 An Adverse Shift in Aggregate Supply 1. An adverse shift in the short run aggregate supply curve . . .
Price Level
Long-run aggregate supply
AS
2 Short-run aggregate supply,
AS
B
P
2 3. . . . and the price level to rise.
P
0 2. . . . causes output to fall . . .
Y
2
Y
A Aggregate demand
Quantity of Output Copyright © 2004 South-Western
Figure 11 Accommodating an Adverse Shift in Aggregate Supply 1. When short-run aggregate supply falls . . .
Price Level
Long-run aggregate supply
AS
2 Short-run aggregate supply,
AS P
3
P
2 3. . . . which causes the
P
price level to rise further . . .
0 A C 4. . . . but keeps output at its natural rate.
Natural rate of output 2. . . . policymakers can accommodate the shift by expanding aggregate demand . . .
AD
2 Aggregate demand,
AD
Quantity of Output Copyright © 2004 South-Western