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SHORT-RUN ECONOMIC FLUCTUATIONS

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Presentation on theme: "SHORT-RUN ECONOMIC FLUCTUATIONS"— Presentation transcript:

1 SHORT-RUN ECONOMIC FLUCTUATIONS
12 SHORT-RUN ECONOMIC FLUCTUATIONS Copyright © 2010 Cengage Learning

2 Aggregate Demand and Aggregate Supply
33 Aggregate Demand and Aggregate Supply

3 Figure 1 A Look At Short-Run Economic Fluctuations
Copyright © 2010 Cengage Learning

4 Figure 1 A Look At Short-Run Economic Fluctuations
Copyright © 2010 Cengage Learning

5 Figure 1 A Look At Short-Run Economic Fluctuations
Copyright © 2010 Cengage Learning

6 Figure 2 Quarterly GDP and the Rate of Unemployment
Copyright © 2010 Cengage Learning

7 Figure 3 Aggregate Demand and Aggregate Supply...
Price Level Aggregate supply Aggregate demand Equilibrium output price level Quantity of Output Copyright © 2010 Cengage Learning

8 Figure 4 The Aggregate Demand Curve
Price Level Aggregate demand P Y 1. A decrease in the price level . . . Y2 P2 Quantity of increases the quantity of goods and services demanded. Output Copyright © 2010 Cengage Learning

9 Figure 5 The Long-Run Aggregate Supply Curve
Price Level Long-run aggregate supply P 1. A change in the price level . . . P2 does not affect the quantity of goods and services supplied in the long run. Natural rate Quantity of of output Output Copyright © 2010 Cengage Learning

10 Figure 6 Long-Run Growth and Inflation
and growth in the money supply shifts aggregate demand . . . Long-run aggregate supply, LRAS 1980 Y 1990 LRAS Y 2000 LRAS Price Aggregate Demand, AD 2000 Level 1. In the long run, technological progress shifts long-run aggregate supply . . . AD 1990 P 2000 and ongoing inflation. P 1990 P 1980 AD 1980 Y 1980 leading to growth in output . . . Quantity of Output Copyright © 2010 Cengage Learning

11 Figure 7 The Short-Run Aggregate Supply Curve
Price Level Short-run aggregate supply Y P 1. A decrease in the price level . . . Y2 P2 reduces the quantity of goods and services supplied in the short run. Quantity of Output Copyright © 2010 Cengage Learning

12 Figure 8 The Long-Run Equilibrium
Price Level Long-run aggregate supply Short-run aggregate supply Aggregate demand A Equilibrium price Natural rate of output Quantity of Output Copyright © 2010 Cengage Learning

13 Figure 9 A Contraction in Aggregate Demand
causes output to fall in the short run . . . Price Level Short-run aggregate supply, AS Long-run aggregate supply Aggregate demand, AD AS2 AD2 but over time, the short-run aggregate supply curve shifts . . . A P Y B P2 Y2 1. A decrease in aggregate demand . . . C P3 and output returns to its natural rate. Quantity of Output Copyright © 2010 Cengage Learning

14 Figure 10 UK Real GDP Growth Since 1900
Copyright © 2010 Cengage Learning

15 Figure 11 An Adverse Shift in Aggregate Supply
1. An adverse shift in the short- run aggregate supply curve . . . Price Level Long-run Short-run aggregate supply, AS AS2 aggregate supply Aggregate demand B Y2 P2 Y A P and the price level to rise. Quantity of causes output to fall . . . Output Copyright © 2010 Cengage Learning

16 Figure 12 Accommodating an Adverse Shift in Aggregate Supply
1. When short-run aggregate supply falls . . . Price Level Long-run Short-run aggregate supply, AS AS2 aggregate AD2 supply C P3 policymakers can accommodate the shift by expanding aggregate demand . . . which causes the price level to rise further . . . P2 A P but keeps output at its natural rate. Aggregate demand, AD Natural rate Quantity of of output Output Copyright © 2010 Cengage Learning

17 Figure 13 Aggregate Demand and Aggregate Supply
Copyright © 2010 Cengage Learning


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