33
AGGREGATEDEMANDANDAGGREGATESUPPLY
WHAT’SNEWINTHESEVENTHEDITION
Thereisa
ewI
theNewsboxo
—WhatHaveWeLear
ed‖
LEARNINGOBJECTIVES
Bythee
dofthischapterstude
tsshouldu
dersta
dthreekeyfactsaboutshortru
eco
omicfluctuatio
showtheeco
omyi
theshortru
differsfromtheeco
omyi
thelo
gru
howtousethemodelofaggregatedema
da
daggregatesupplytoexplai
eco
omicfluctuatio
showshiftsi
eitheraggregatedema
doraggregatesupplyca
causeboomsa
drecessio
s
CONTEXTANDPURPOSE
Tothispoi
tourstudyofmacroeco
omictheoryhasco
ce
tratedo
thebehavioroftheeco
omyi
thelo
gru
Chapters20through22
owfocuso
shortru
fluctuatio
si
theeco
omyarou
ditslo
gtermtre
dChapter20i
troducesaggregatedema
da
daggregatesupplya
dshowshowshiftsi
thesecurvesca
causerecessio
sChapter21focuseso
howpolicymakersusethetoolsofmo
etarya
dfiscalpolicytoi
flue
ceaggregatedema
dChapter22addressestherelatio
shipbetwee
i
flatio
a
du
employme
tThepurposeofChapter20istodevelopthemodeleco
omistsusetoa
alyzetheeco
omy’sshortru
fluctuatio
sthemodelofaggregatedema
da
daggregatesupplyStude
tswilllear
aboutsomeofthesourcesforshiftsi
theaggregatedema
dcurvea
dtheaggregatesupplycurvea
dhowtheseshiftsca
causerecessio
sThischapteralsoi
troducesactio
spolicymakersmightu
dertaketooffsetrecessio
s
337
2012Ce
gageLear
i
gAllRightsReservedMay
otbesca
edcopiedorduplicatedorpostedtoapubliclyaccessiblewebsitei
wholeori
part
f338Chapter20AggregateDema
da
dAggregateSupply
KEYPOINTS
Allsocietiesexperie
ceshortru
eco
omicfluctuatio
sarou
dlo
gru
tre
dsThesefluctuatio
sareirregulara
dlargelyu
predictableWhe
recessio
sdooccurrealGDPa
dothermeasuresofi
comespe
di
ga
dproductio
falla
du
employme
trisesClassicaleco
omictheoryisbasedo
theassumptio
that
omi
alvariablessuchasthemo
eysupplya
dthepriceleveldo
oti
flue
cerealvariablessuchasoutputa
demployme
tMosteco
omistsbelievethatthisassumptio
isaccuratei
thelo
gru
but
oti
theshortru
Eco
omistsa
alyzeshortru
eco
omicfluctuatio
susi
gthemodelofaggregatedema
da
daggregatesupplyAccordi
gtothismodeltheoutputofgoodsa
dservicesa
dtheoveralllevelofpricesadjusttobala
ceaggregatedema
da
daggregatesupplyTheaggregatedema
dcurveslopesdow
wardforthreereaso
sThefirstisthewealtheffectAlowerpricelevelraisestherealvalueofhouseholds’mo
eyholdi
gswhichstimulatesco
sumerspe
di
gTheseco
disthei
terestrateeffectAlowerpricelevelreducesthequa
tityofmo
eyhouseholdsdema
dashouseholdstrytoco
vertmo
eyi
toi
terestbeari
gassetsi
terestratesfallwhichstimulatesi
vestme
tspe
di
gTr